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"Swedish Bank Customers shall not be allowed to pay the bill for the extra capital requirements of the banks": Swedish Finance Minister

Thursday, 13 October 2011
Recently, we reported how the values of Swedish banks were determined to be relatively lower than one would have expected given the strong talks that Swedish banks were properly capitalised. As such the minister of Finance requested that Swedish banks must improve on their values so as to stem any further stresses coming from the market.

But the question that was asked was how would the banks improve on their values or beef up their financial or capital requirement. As expected the general approach used by the banks was to look at their customer – those do any form of business with them as a way to raise required capital. We pointed out that they were going to increase mortgage cost so as to generate extra resources from the additional costs.

This is so hard for the Swedish bank customer who are already much ripped off by banks here than in most other countries. Also Swedish institutional structures are designed such that nothing one can do is possible without access to the banks.

But to calm down fears, the Swedish Finance Minister, Anders Borg, believe that bank customers should not have to pay when banks are forced to increase their own capital.  For him, the owners of the banks instead must accept to earn less money.

The Finance Minister also said that the urgency of a settlement of the debt crisis in Europe is needed such that by the end of October, there must be an EU package that shows clearly the vision for the future.

Anders Borg, recently criticized the Swedish banks after it emerged that Swedbank was carrying out a buyback, which had favoured the owners, but which had eroded the bank's capital. The bank had to back off from the process.


On the whole as the Euro crisis deepens, the minister feels that at the moment, Swedish banks are strong, very strong even in a European perspective. Though agreeing with that, he still feels that they must strengthen their capital base - have more money of their own defense.

Swedish mortgage holders would not be called upon to pay more according to the minister.  The banks may have to lower their rates of return rather than passing it to the customers, according to Borg.

In its latest quarterly report, Nordea CEO, Christian Clausen wrote that the he expects the bank to have a return on equity of 15 percent. The finance minister thinks that such a requirement is too over ambitious.

But even though he wants to see restraint with dividends and buybacks, Borg has no plans to threaten them with legislation. He believes that the bank management have self-preservation and will realize that they have to lie low, that it is too risky to hand out large sums in the midst of a burning bank crisis.

Talking about the euro crisis, there must be some form of policy coordination within the EU to tackle the crisis, according to the minister.
There are various estimates of how much Europe's banks need to cope with the crisis, but the IMF believes that it can be up to about €200 billion, about Skr1900 billion that would be required.

Most banks are able to raise additional capital through financial markets, but some state must intervene. In an opinion piece to the Financial Times, Borg and Carl Bildt wrote that yesterday, referring to the Swedish experience of similar crisis in the early 1990's. They set a number of requirements in which state aid shall be provided, which among others that the taxpayers should take over the banks at market rates, and should give them the chance to recoup the cost when the banks have been saved and are working properly.

In addition, the States determine dividends, salaries and bonuses to bank officials. β€œIt was absolutely devastating for the credibility of the U.S. taxpayer to save their banks - and then for the banks to turn around and pay out huge bonuses to themselves,” reminds Borg.
By Team

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