Peter Norman: "The Swedish Perspective"


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A presentation held by Mr Peter Norman, Minister for Financial Markets, at the high level seminar "Towards a sustainable financial system" hosted by the Stockholm based think tank Global Challenge in cooperation with London School of Economics and The Swedish House of Finance on September 12th 2013.

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Peter Norman: "The Swedish Perspective"

  1. 1. Finansdepartementet Towards a sustainable financial system The Swedish Perspective Mr Peter Norman Minister for Financial Markets 12 September 2013
  2. 2. Finansdepartementet Agenda • Financial stability and the economic situation in Europe • Swedish reforms since 2008 • The government’s new proposals
  3. 3. Finansdepartementet Financial stability – a necessity for a European recovery • European monetary policies need more support from fiscal policies • Especially in countries where the banking sector is still fragile • Financial stability a prerequisite both for a recovery and for long term growth
  4. 4. Finansdepartementet Lessons from the crisis • Large costs to society from financial crises - mainly internationally but also in Sweden • Sweden is highly exposed with its large financial sector • Extensive measures taken at both national and EU level to strengthen financial stability
  5. 5. Finansdepartementet The Irish crisis
  6. 6. Finansdepartementet Measures to increase financial stability complement fiscal and monetary policy Monetary policy Fiscal policy StrukturpolitikStabiliseringspolitik Financial stability measures Financial supervision of individual institutions
  7. 7. Finansdepartementet Precautionary measures adopted • Strengthened supervision • Higher capital and liquidity requirements • A risk weight floor for the capital requirement of banks’ mortgage lending • Loan-to-value cap
  8. 8. Finansdepartementet Crisis resolution measures adopted • Government Support to Credit Institutions Act 2008 • An extended deposit guarantee scheme (DGS) • A stability fund financed by stability fees
  9. 9. Finansdepartementet Further action motivated • The balance sheet of the Swedish financial sector is four times as large as GDP • Since the mid 1990s, dramatic increases in household debt levels and house prices
  10. 10. Finansdepartementet Household debt levels
  11. 11. Finansdepartementet The government’s proposals • The FSA is given the main responsibility of the financial stability tool box • Banks to shoulder cost of Sweden’s extra large foreign exchange reserves • Creating a Financial Stability Council • Stabilisation Fund is made into a proper fund with own financial resources • A sounder amortization culture
  12. 12. Finansdepartementet Average loan-to-value ratio of Dutch home purchases 2000-2011
  13. 13. Finansdepartementet Why give the responsibility to the FSA? • Provides democratic accountability • Easier - the FSA is presently in charge of assessing capital and liquidity requirements for individual institutions • Lessens a potential conflict of interest • The Riksbank's mandate unchanged
  14. 14. Finansdepartementet A Financial Stability Council • Improved cooperation in preventive work and improved coordination during crises • Not decision making body • Minister for Financial Markets Chairman, includes heads of FSA, the Riksbank and National Debt Office • Set up as a committee with its own secretariat
  15. 15. Finansdepartementet Prudence is key • The overall objective is to avoid a boom-bust scenario like the Irish • However, delicate balance – do not want to kill a fledging recovery and trigger a contraction
  16. 16. Finansdepartementet Dutch GDP growth and home prices 2004-2013
  17. 17. Finansdepartementet Activity at the EU level • New capital requirements CRR / CRD 4 enter into effect in 2014 • Bank Recovery and Resolution Directive Negotiations continue • Banking Union Single Supervisory Mechanism agreed, Single Resolution Mechanism being negotiated
  18. 18. Finansdepartementet Risks remain The Government continues to closely monitor the developments in the financial sector… … as well as household debt levels Always ready to take further action if motivated