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 …

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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  • 1. Finansdepartementet Towards a sustainable financial system The Swedish Perspective Mr Peter Norman Minister for Financial Markets 12 September 2013
  • 2. Finansdepartementet Agenda • Financial stability and the economic situation in Europe • Swedish reforms since 2008 • The government’s new proposals
  • 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. 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. Finansdepartementet The Irish crisis
  • 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. 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. 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. 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. Finansdepartementet Household debt levels
  • 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. Finansdepartementet Average loan-to-value ratio of Dutch home purchases 2000-2011
  • 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. 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. 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. Finansdepartementet Dutch GDP growth and home prices 2004-2013
  • 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. 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