Stefan ingves towards a sustainable financial system 12 sep 2013


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A presentation held by Mr Stefan Ingves, Riksbank Governor, 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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Stefan ingves towards a sustainable financial system 12 sep 2013

  1. 1. Stefan Ingves, 12 September 2013 Towards a sustainable financial system
  2. 2. Financial crises have significant costs JapanUS UK Korea Mexico Sweden Source: BIS
  3. 3. Some key drivers of reform Too low quality and quantity of capital Too high leverage No liquidity framework Interconnectedness and systemic risk Too big to fail
  4. 4. Basel III – the regulatory response Strengthened capital requirements Cap on bank leverage New requirements on bank liquidity Objective: reduce the probability and severity of banking crises in the future Higher capital requirements for systemically important banks
  5. 5. Leverage ratio is a backstop to risk- based capital requirements Tier 1 capital Total assets including off-balance sheet items > 3 % 2010 2013 2015 2018 Basel III Leverage ratio rules text consultation and decision Disclosure requirement ”view to migrate to Pillar 1 treatment”
  6. 6. Leverage ratio adds a new perspective on Swedish banks’ capital position Core tier 1 capital ratio according to Basel II December 2012, per cent 0 2 4 6 8 10 12 14 16 18 20 Crédit Agricole RBS Banco Santander Raiffeisen Société Générale Barclays BBVA UniCredit Intesa Sanpaolo DNB Deutsche Bank BNP Paribas Lloyds Commerzbank HSBC Nordea Danske Bank SEB Credit Suisse Swedbank Handelsbanken UBS Sources: SNL Financial, Liquidatum and the Riksbank 0 2 4 6 8 10 12 Handelsbanken SEB Nordea Swedbank Equity in relation to total assets (not equal to Basel III Leverage Ratio) December 2012, per cent
  7. 7. Net Stable Funding Ratio highlights structural liquidity risk Cash Securities Loans (low risk weights) Loans (higher risk weights) Long term debt Retail deposits Wholesale deposits Short term debt ASSETS LIABILITIES Liquid Less liquid Stable Less stable
  8. 8. More focus on structural liquidity risks in Swedish banks Sources: Liquidatum and the RiksbankNote. The dashed lines show the mean value, the red dots illustrate a group of 40 European banks.
  9. 9. Swedish banks’ progress towards the new regulatory requirements Note: the indicated positions in the diagram shows the average Basel III ratios for the major Swedish banks. For CET 1 Sweden has currently a higher requirement at 12 % CET 1. the Basel requirement is 9.5% if the contra cyclical buffer and capital conservation buffer are included. Source: The Riksbank
  10. 10. Requirements may be raised for systemically important institutions LCR CET1 Leverage ratio NSFR 100 % 9.5 % 100 %3 % Stricter requirements for systemically important banks
  11. 11. Going forward, regulatory measures may be substitutes, subject to minima LCR CET1 Leverage ratio NSFR 100 % 9.5 % 100 %3 % Bank X Bank Y  Authority wants to set higher requirements on Banks X and Y  Depending on banks’ business models, requirements may take different forms  Due to higher liquidity risks, Bank X needs more capital  Due to weaker capital, Bank Y needs more liquidity buffers
  12. 12. More than Basel III… OTC-derivative market reforms Framework for dealing with failing banks Bail-in capital Strengthened capital requirements Cap on bank leverage New requirements on bank liquidity
  13. 13. Better regulation contributes to a more sustainable system Enhanced financial stability A more sustain- able financial system Stronger real economy Better regulation
  14. 14. Thank you
  15. 15. EXTRA
  16. 16. Moving towards central clearing Central clearing of standardized OTC- derivatives Margining Capital requirements Reporting to trade repositories Increased transparency Mitigated systemic risks