Stefan Ingves, 12 September 2013

Towards a sustainable

financial system

Financial crises have significant costs Japan US UK

Korea Mexico Sweden

Source: BIS

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

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

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”

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 AgricoleRBS

Banco SantanderRaiffeisen

Société GénéraleBarclays

BBVAUniCredit

Intesa SanpaoloDNB

Deutsche BankBNP Paribas

LloydsCommerzbank

HSBCNordea

Danske BankSEB

Credit SuisseSwedbank

HandelsbankenUBS

Sources: SNL Financial, Liquidatum and the Riksbank

0 2 4 6 8 10 12

Handelsbanken

SEBNordea

Swedbank

Equity in relation to total assets (not equal to Basel III Leverage Ratio)

December 2012, per cent

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

More focus on structural liquidity risks in Swedish banks

Sources: Liquidatum and the Riksbank Note. The dashed lines show the mean value, the red dots illustrate a group of 40 European banks.

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

Requirements may be raised for systemically important institutions

LCR

CET1

Leverage ratio

NSFR

100 %

9.5 %

100 % 3 %

Stricter requirements for

systemically important banks

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

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

Better regulation contributes to a more sustainable system

Enhanced financial stability

A more sustain-

able financial system

Stronger real

economy

Better regulation

Thank you

EXTRA

Moving towards central clearing Central clearing of standardized OTC-

derivatives

Margining

Capital requirements

Reporting to trade repositories

Increased transparency Mitigated systemic risks