Bankers in Scandinavia say new Basel rules hit them unduly hard

Bloomberg

The financial industries of Sweden and Denmark were quick to criticise the Basel Committee on Banking Supervision’s completed framework, arguing it will hit Scandinavian lenders too hard. “The Basel standards will, if they are fully implemented in the
EU and Sweden, have large negative effects for Swedish banks, their clients and the Swedish economy,” Hans Lindberg, the head of the Swedish Bankers’
Association, said in a statement.
In Denmark, the banking lobby said it is “fundamentally opposed” to the introduction of a capital floor, and pledged to work to ensure European authorities are aware of the “very unfortunate side effects of such regulations.” Despite the warnings, Nordic bank stocks opened higher, with Danske Bank A/S among the best performers in the Bloomberg index of European financial firms. Share moves indicated investors in the financial industries of Sweden and Denmark viewed the Basel package as a softer version of earlier proposals.
Svenska Handelsbanken AB, Nordea Bank AB, Swedbank AB and SEB AB also all traded higher. The Basel Committee ended a year-long deadlock, completing a capital framework intended as a response to the 2008 financial crisis. The agreement includes new curbs on how banks estimate the risk of mortgages, loans and other assets on their books in an effort to improve the transparency and health of lenders’ balance sheets, the committee said.
The new framework restricts the options lenders have with a limit on how low banks can drive their capital requirements by measuring asset risk with their own statistical models. Top European Union officials first opposed the inclusion of this floor, then pushed for a level of 70 percent of the result yielded by using a standard formula set by regulators. The US sought an 80 percent floor, later coming down to 75 percent. In the end, negotiators settled on 72.5 percent.
In Scandinavia, lenders have typically relied on their own internal models to determine how risky their assets are and how much capital they need to hold. Sweden’s financial regulator said it won’t automatically start raising banks’ capital standards based on the Basel Committee’s completed framework. Denmark said the new rules may add “substantially” to banks’ existing capital requirements. Business Minister Brian Mikkelsen said he’ll work to ensure the rules don’t hit credit institutions “unnecessarily hard,” according to a statement on the ministry’s website.