UPDATE 1-Swedish debt office: too early to activate countercyclical capital buffers

Thu May 22, 2014 7:17am EDT

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STOCKHOLM May 22 (Reuters) - Sweden's debt office said on Thursday it is too early to activate the countercyclical capital buffers which the country's financial regulator wants to roll out in the summer of 2015.

Sweden has seen a string of new bank regulations in recent years and the Financial Supervisory Authority (FSA) said this week it wanted to introduce a countercyclical buffer that forces Swedish banks to hold an extra percentage point of core tier 1 capital from next summer.

That would come on top of capital requirements that are already among the highest in Europe.

Hans Lindblad, head of Sweden's debt office, said in a statement that a further analysis was needed before additional regulatory measures are taken.

"Fiscal policy is expected to be tighter next year," he said. "This makes higher demands in addition to what is already decided, for example to activate the countercyclical capital buffer, less appropriate in the current situation."

The Debt Office is part of the newly formed stability council, a forum where Swedish regulators discuss and recommend new regulation to strengthen the Swedish financial system. The FSA has the final say on which measures are implemented.

Lindblad said good action had already taken.

"Now, however, we need a coordinated analysis and evaluation before further steps are taken," he said.

Swedish households are among the most heavily indebted in Europe, with debts of around 174 percent of disposable income, prompting the central bank to keep monetary policy relatively tight, despite low inflation pressure.

Sweden has taken several measures to cool the housing market. The financial watchdog introduced a cap on mortgage borrowing of 85 percent of the value of a home in 2010 and is forcing banks to hold more capital to cover potential risks in their mortgage portfolios. (Reporting by Johan Ahlander; Editing by Toby Chopra)

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