Ingves: Basel III – regulations for safer banking
Governor Stefan Ingves presented a speech on Thursday at the Swedish Bankers’ Association’s bank meeting. The speech was entitled Basel III – regulations for safer banking and dealt with the Riksbank’s view of how the Swedish banking sector should be regulated in the light of the Basel III agreement. Mr Ingves noted that the Swedish banking sector has several characteristics that mean that Sweden should proceed faster and set higher requirements than Basel III does. The Riksbank intends to soon present concrete proposals on how the Basel III regulations should be introduced in Sweden.
Mr Ingves opened his speech by pointing out the importance of an efficient financial sector and also reminded his audience of how costly financial crises are. He explained how insights into the vulnerability of the banking sector and its great significance for the real economy had led the Basel Committee to demand bigger and better safety measures. These demands mean that the banks will have to have more, higher quality equity and better liquidity. They also mean that particularly high demands will be placed on systemically-important banks. Mr Ingves emphasised that the regulations of Basel III are a minimum standard and that certain countries may have reason to place higher requirements.
Sweden is one such country. The Swedish banking system, said Mr Ingves, is distinguished by a number of characteristics that make it special from an international perspective – characteristics that either increase the risk of problems or the socioeconomic costs if problems should arise in the banking sector. Our banking system is concentrated, large and international, with significant implicit state guarantees, a heavy dependence on market funding, particularly in foreign currency, and low risk weightings.
Mr Ingves then discussed which measures the Riksbank considers should be contemplated when Basel III is introduced in Sweden. According to Mr Ingves, higher capital adequacy requirements need to be placed on the major Swedish banks than are stipulated by Basel III. An increased capital adequacy requirement may also need to be matched by a tighter leverage ratio requirement. Basel III's short-term liquidity requirements need to be met on a per-currency basis. This may also apply to the Riksbank's reserve requirement. In addition, a floor for banks' risk weightings may be needed, so that the risks in mortgages are not underestimated, for example.
Mr Ingves concluded by announcing that the Riksbank would soon present concrete proposals for the measures to be adopted. For example, this would include how much higher than Basel III's minimum levels the capital adequacy requirements for the major banks should be. A Financial Stability Report will be published on 29 November. In connection with this, the Riksbank will also publish a report analysing the economically-appropriate capital adequacy requirements for the major Swedish banks.
