Basel III
– regulations for
safer banking
Swedish Bankers’ Association
Stefan Ingves, 10 November 2011
The banks are important to the
economy
A motorway junction for the economy
Important, but risk of serious external effects
Financial crises have significant
economic costs
Crises have permanent
negative effects on growth…
…and, in a financial crisis,
the bill for the taxpayers is considerable
Conceptual sketch
Public sector net debt in the United Kingdom, 2001-2013
GDP
GDP level
Trend
Crisis
Post-crisis
trend
Time
Sources: The Riksbank, Independent Committee on Banking
Banks need a substantial amount of
equity
Capital adequacy requirements in Basel III and Basel II
2%
1.5%
9.5%
Contracyclical buffer
0-2.5%
8%
7%
2.5%
4.5%
Conservation
buffer
4%
4%
2%
Minimum requirement
2%
2%
CET 1
Additional
Tier 1
Basel III
Tier 2
CET 1
Additional
Tier 1
Basel II
Tier 2
Basel III sets up clear measures for
liquidity
Liquidity in the short term
Liquidity Coverage Ratio
High quality liquid assets
Net cash outflow over the
coming 30 calender days
> 100%
Liquidity in the long term
Net Stable Funding Ratio
Available stable funding
Need for stable funding
> 100%
Systemically-important banks need
special regulation


Almost 30 global systemicallyimportant banks (G-SIB)
Package for special resilience



Framework for crisis management
Extra buffer of Common Equity Tier 1
equal to 1-2.5 per cent of RWA
More intensive supervision
Indicators of
systemic importance
• Cross-jurisdictional activity
• Size
• Interconnectedness
• Substitutability

On the way – D-SIB
• Complexity
Features of the Swedish banking
market

Concentration

Size and international operations

Implicit state guarantees

Market funding and funding in foreign currencies

Liquidity

Risk weighting
The Swedish banking system is
concentrated
Sources: OECD and World Bank
Swedish banks are large and
internationally dependent
Bank assets in relation to GDP, June 2010
Sources: The ECB, the Swiss National Bank and the Riksbank
Implicit state guarantees
Five-year CDS for Danske Bank and Nordea 2010-2011, basis points
300
250
200
Nordea
Danske Bank
150
100
50
0
2010-01-01
2010-06-01
2010-11-01
2011-04-01
2011-09-01
Source: Bloomberg
Large share of market funding in
foreign currency
The major Swedish banks’ market funding via Swedish parent companies and subsidiaries,
1998-2011 (quarter 1), SEK billions
3 000
2 500
2 000
1 500
1 000
500
0
98
99
00
01
02
03
04
05
Foreign currency
06
07
08
09
10
11
12
SEK
Sources: Statistics Sweden and the Riksbank
Weaker liquidity position than others
in Europe
Survival period in the Riksbank’s
stressed scenario, months, December 2010
2,5
Stable funding as share of illiquid assets,
December 2010
100%
90%
2,0
80%
70%
1,5
60%
50%
1,0
40%
30%
0,5
20%
10%
0,0
Swedbank
Nordea
Handelsbanken
0%
SEB
Mean,
European
banks
SEB
Handelsbanken
Nordea
Swedbank
Mean,
European
banks
Sources: Liquidatum and the Riksbank
Swedish banks have low risk
weightings
Risk weighting on mortgages according to Basel II, per cent
60
50
40
30
20
10
Slovakia
Latvia
Hungary
Spain
Lithuania
Estonia
Italy
Germany
Netherlands
Greece
Norway
Denmark
Finland
Belgium
Sweden
0
Sources: National central banks and the Riksbank, FSR 2011:1
Sweden has had bad experiences of
low capital adequacy
Source: The Riksbank
Resilience is needed in uncertain
times
Example:
Rough estimate of loss aversion in 35 major European banks
Loan losses and provisions
2007-2010
SEK 350 billion
Common Equity Tier 1
2010
SEK 780 billion
Example:
Similarly large loan losses in the
next few years
350
780

45 per cent of
Common Equity Tier 1
Source: The Riksbank
Other countries with large banking
industries have more stringent
regulations than Basel III
Bank assets in relation to GDP,
June 2010
Commission of Experts
•
•
•
Progressive capital requirements
10 per cent equity
9 per cent contingent convertibles
Independent Commission
on Banking
•
•
•
Structural separation of retail and
investment banking
Extra capital buffer for retail banks
Capital and bail-in bonds to total
17-20 per cent
The Riksbank sees a need for
regulation in several areas
Capital adequacy
requirements
Short-term liquidity and
reserve requirements
Risk weightings
Need to go beyond
requirements of Basel III
•
Leverage ratio measure
Need to be met on per-currency
basis
•
ESRB recommendations
Need for a floor
The Riksbank will clarify its
recommendations soon
The Financial Stability
Report 2011:2 will be
published on
29 November