Ingves: Managing structural risks in the Swedish banking sector
On Wednesday, the Governor of the Riksbank, Stefan Ingves, gave a speech at Affärsvärlden's "Bank & Finans Outlook" in which he discussed the measures needed to manage structural risks in the Swedish banking sector. Mr Ingves said that as a small, open economy with its own currency and a large banking sector, Sweden needs to complement the international regulations by proceeding more quickly and imposing stricter demands on the Swedish banks.
Stefan Ingves began by describing the risks that were taken in the banking sector before the financial crisis and how the crisis highlighted these risks. He then described how the international Basel III regulations have been drawn up to prevent new crises. Mr Ingves went on to discuss the special characteristics of the Swedish banking sector. He said that there are structural weaknesses in the banking system; these include the fact that the banks fund their operations on the capital markets and in foreign currencies to a large extent, which makes them sensitive to fluctuations in market confidence. The amortisation culture for mortgages is also weak.
Mr Ingves concluded that the Swedish banks need to comply with the international regulations by a broad margin. He described how the decisions already made by the Swedish authorities have strengthened the Swedish banks. Mr Ingves then declared that there are several areas that require further examination; these include the ability of the banks to meet short-term liquidity requirements separately in Swedish kronor, how the Riksbank's foreign-exchange reserve should be financed, whether there are reasons to further raise the so-called risk-weight floor for mortgage loans, restoring an amortisation culture and putting a framework for macroprudential policy in place in Sweden.
Mr Ingves concluded by pointing out that the financial sector plays an important role in modern society and said that regulations that address the special characteristics and structural risks of the Swedish banking sector are central instruments in the work to promote financial stability.
Read the entire speech.
