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Stefan Ingves, 12 September 2013
Towards a sustainable
financial system
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Financial crises have significant costs Japan US UK
Korea Mexico Sweden
Source: BIS
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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
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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
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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”
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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
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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
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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.
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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
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Requirements may be raised for systemically important institutions
LCR
CET1
Leverage ratio
NSFR
100 %
9.5 %
100 % 3 %
Stricter requirements for
systemically important banks
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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
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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
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Better regulation contributes to a more sustainable system
Enhanced financial stability
A more sustain-
able financial system
Stronger real
economy
Better regulation
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Thank you
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EXTRA
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Moving towards central clearing Central clearing of standardized OTC-
derivatives
Margining
Capital requirements
Reporting to trade repositories
Increased transparency Mitigated systemic risks