UPDATE 1-Swedish cbank wants tougher buffers for banks

Fri May 23, 2014 8:52am EDT

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STOCKHOLM May 23 (Reuters) - Sweden's banks should have bigger buffers than currently proposed with which to withstand any future financial crisis, the head of the central bank said on Friday, underlining divisions among Swedish authorities over tougher rules.

Sweden has introduced a raft of legislation to beef up banks core capital buffers and strengthen the country's financial system in recent years and its regime is already among the strictest in Europe.

Earlier this week, Sweden's Financial Supervisory Authority said a 1 percent countercyclical buffer for banks should introduced from summer 2015.

But central bank Governor Stefan Ingves said banks should set aside more capital.

"I think it should be set at 2.5 (percent), because we are carrying a burden as a result of the fact that debts have risen very quickly for such a long period and we can't get away from that fact," he told reporters after a meeting of the country's Stability Council.

"I think we should do this as quickly as possible."

Ingves' statement highlights divisions among top Swedish policymakers over the counter-cyclical buffer, which will take core capital to an average of 16 percent of risk weighted assets in Sweden, much higher than in most of Europe.

Ingves is among policy-makers who are worried that levels of household debt in Sweden - among the highest in Europe at over 170 percent of disposable income - are a threat to financial stability.

A recent report by the central bank said that figure may underestimate the scale of the problem.

Sweden's Debt Office has concerns about the introduction of a countercyclical buffer next year, fearing the burden may come too soon for an economy that has yet to fully recover from the downturn.

Sweden has already taken a number of steps to boost bank capital and cool the housing market and Debt Office head Hans Lindblad said further analysis was needed before more regulatory measures were taken.

Announcing its plan for a 1 percent countercyclical buffer earlier this week, the FSA said that the planned introduction of higher mortgage risk weights, which will rise to 25 percent from 15 percent later this year, offset the need for a higher countercyclical buffer.

The government supports the FSA's 1 percent proposal and Markets Minister Peter Norman played down any disagreement over the measure as marginal.

"My assessment is that we have a very similar picture of reality," he told reporters after the meeting of the stability council, which includes the government, the Debt Office, the FSA and the central bank. (Reporting by Johan Ahlander, Daniel Dickson, Simon Johnson and Johan Sennero; Editing by Alistair Scrutton)

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