A stable, well-functioning financial market for allA stable, well-functioning financial market for allThe Swedish banks can manage the recession (2008:18)
The four Swedish big banks have managed relatively well so far in the international bank crisis. Financing risks has been the greatest threat to Swedish banks during the autumn's turbulence. Thanks to measures by the Riksbank (Swedish central bank) and the Swedish National Debt Office, these risks have been managed to a great extent until the financing markets begin to function normally again.
The big banks' losses due to the crisis have been limited so far. The banks have buffers in the form of profits and capital over and above the legislated minimum levels which can cover unexpected losses. Over a twelve-month period, the banks can manage losses of approximately SEK 175 billion without breaching the capital requirements. The banks suffered credit losses of less than SEK 3 billion during the first six months of this year.
We are now entering a period of lower economic growth. The risks deal with the extent of the business cycle's negative impact on the banks' credit losses in Sweden and abroad. There is currently great uncertainty in the economic forecasts. It is unknown how deep the recession will be. The uncertainty concerning the credit loss development is particularly great in the Baltic states.
Stress tests that Finansinspektionen has conducted on the banks' balance sheets show that the four big banks have the capability to fulfil the capital adequacy requirements even in the event of a serious recession in Sweden and the Baltic states. In the stressed scenario, the presumed credit losses in the Baltic states are twice as large as those that Swedish banks suffered during the bank crisis at the beginning of the 1990s, while the credit losses in Sweden and the rest of the world are assumed to increase rapidly.
The Swedish pension companies have managed the turbulence on the financial markets over the past few months. According to FI's calculations, they have the financial resources for additional fluctuations. In other words, the companies currently have margins for the capital required by law as protection of the policyholders' guaranteed pensions. However, the combination of declining share prices and declining interest rates has had a negative effect on the companies' capital and resistance.
The financial regulation and supervision need to learn from the crisis. At the same time, the changes must be forward-looking in order to handle the new conditions for banking operations and other financial operations that the crisis has created. Strong explicit or implicit government guarantees for both commitments and liquidity will facilitate the banks. There is a risk that this will ultimately lead to undesirable behaviours and new crises if corporate governance, regulations and the financial supervision are not correctly structured.
