UPDATE 1-Sweden's new capital buffers to exceed 2.5 pct in extremes
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STOCKHOLM, Sept 3 (Reuters) - Tougher capital buffers planned for Sweden's banking sector would rise above 2.5 percent of risk-weighted assets only in extreme situations, the country's financial watchdog FSA said on Tuesday.
Banks in Sweden have to hold Tier 1 capital of at least 10 percent of risk-weighted assets as a buffer against possible losses.
But as the latest provisions from the Basel Committee of global banking supervisors are incorporated into Swedish financial regulation, from mid-2014 the government will also impose a buffer of between zero and 2.5 percent of assets in times of high credit growth.
Swedish households are among the most indebted in the world with an average loan-to-income ratio in excess of 170 percent.
Last week, the government decided the FSA would be in charge of macroprudential policy, and of deciding when and at what level to apply the new capital requirement.
FSA head Martin Andersson told Reuters in a telephone interview that the buffers - intended as an instrument to help curb excessive credit growth - would under normal circumstances be in the range of zero to 2.5 percent.
"If you read the rules, it is 0 to 2.5 percent that is the normal situation for these buffers, but in extreme cases there is a possibility for individual countries to go higher," he said.
Andersson thought the buffers would be in place by mid-2014, specifying that they would not be used for "fine-tuning" of the broader economy and would be linked to credit growth.
Asked how high the buffer requirement would be based on today's conditions, Andersson refused specify a level but said it would be higher than zero.
Swedish household credit growth, which in the mid-2000s was as high as 10-12 percent per year, has slowed to around 4.5 percent but ticked up to 4.8 percent in July, despite central bank and regulators' efforts to keep credit growth in check.
Household indebtedness and rising house prices have been a headache for Sweden's FSA, the Riksbank and the government.
The FSA has introduced an 85 percent loan-to-value cap, but the Riksbank has called for additional measures, such as mandatory amortization for house loans, which would curb the interest-only loans that make access to credit easier. (Editing by Geert De Clercq/Ruth Pitchford)
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