Nordea’s planned reorganisation increases the Swedish state’s undertaking
A reorganisation of Nordea from a subsidiary structure to a branch structure will give Swedish authorities a more direct responsibility for the supervision and crisis management of Nordea’s banking operations both in Sweden and abroad. The transformation into a branch structure will increase the scope of the Swedish state’s, including the Riksbank’s, undertakings. There are hence grounds for tightening the requirements imposed on Nordea to strengthen the bank’s resilience.
Nordea has applied to Finansinspektionen for permission to merge with its subsidiaries in Denmark, Finland and Norway, thereby transforming into a branch structure. Finansinspektionen has given the Riksbank the opportunity to comment on Nordea's application.
A larger Nordea needs increased resilience
A transformation into a branch structure will increase Nordea Bank AB's balance sheet total from about SEK 1,800 billion to an estimated SEK 4,800 billion. A larger balance sheet increases the risks for the Riksbank and ultimately for Swedish public finances. The scope of the potential financial undertaking for liquidity support from the Riksbank and any future Swedish state crisis management measures will significantly increase. The increased undertaking for the Riksbank may lead to, among other things, greater credit risk and increased costs due to a large foreign currency reserve. There is hence reason to increase Nordea's resilience. The Riksbank therefore considers that Nordea should be subject to liquidity coverage requirements (LCR) in all significant currencies. Finansinspektionen should also be given sufficient resources in order to satisfy the increased need for supervisory efforts.
The transformation into a branch structure also underlines the need for a number of measures that the Riksbank has previously called for on several occasions and which apply to the major Swedish banks in general. These measures include the introduction of a leverage ratio requirement of 5 per cent, a review of the risk-based capital requirements and the need for the banks to reduce their funding risks and achieve the minimum level of 100 per cent in stable funding (NSFR). In addition, the major banks need to have a sufficient proportion of liabilities that can be written down or converted into capital in order to absorb losses during resolution.