(Bloomberg) -- Nordea Bank AB's relocation from Stockholm to Helsinki in pursuit of a friendlier regulatory environment is drawing expressions of dismay from some of Sweden's highest-ranking officials.
Stefan Ingves, the governor of Sweden's Riksbank and the chairman of the Basel Committee on Banking Supervision, called the decision “dangerous for everyone in the Nordics and Baltics” if Nordea's intention was to reduce its capital requirements. Speaking at a Riksbank press conference on Thursday, Ingves also questioned whether Finland, which is in the euro zone and banking union, had bitten off more than it could chew in welcoming a bank with assets that are more than double the country's GDP.
Ingves said the example ought to drive closer Nordic cooperation. “When businesses are moving ahead of nation states, then nation states have to cooperate in some way,” he said.
Whether the goal is to have supervisors put up a united front to stop mega banks shopping around for rules, or to create a level playing field so banks stay competitive, closer coordination is emerging as the main catch phrase as the dust settles after Nordea's move.
Nordea Chief Executive Officer Casper von Koskull says the failure to develop a more harmonized regulatory environment across Sweden, Finland, Denmark and Norway left his bank weaker.
“Frankly, these four home markets that we have, they are all part of the European single market,” von Koskull said in an interview in Helsinki on Thursday. “We should have that level playing field and same regulatory regime in not only those four countries but more broadly in Europe. That's the only way. Otherwise you get distortions. And we have already seen where size, and our Nordic footprint, has put us in a weaker position being where we were. I mean it's quite clear.”
Von Koskull says a bank operating across regulatory jurisdictions will always become “dependent on the lowest common denominator,” a situation that became untenable for Nordea. When the bank published second-quarter earnings, von Koskull made clear that being in the European banking union (of which Finland is the only Nordic member) was key to management's decision on where to move. He says he hopes Denmark and Sweden will also join. (Both countries are exploring the merits of doing so, but say the process will take two years.)
Differences
Thomas F. Borgen, the CEO of Copenhagen-based Danske Bank A/S, has made a similar point, and recently urged Nordic regulators to reconsider their differences. These include Sweden's tougher capital requirements and bigger contributions to the nation's resolution reserve. What's more, banks in Sweden can't deduct the interest they pay on subordinated debt from their taxes.
Erik Thedeen, the head of Sweden's Financial Supervisory Authority, says there's already a lot of cross-border harmonization in the European Union. But he also argues there are reasons for the nuances that exist.
“It sounds very easy to say, but it isn't that easy when you're looking at the practicalities because there are differences both in tradition and legislation in the various Nordic countries,” he said in an interview in Stockholm on Thursday. Sweden's regulator is already “working very closely with other Nordic countries,” he said.
Stricter
Thedeen also pointed to a Nordic memorandum of understanding that was created when Nordea turned its subsidiaries in the region into branches, placing oversight responsibility with the regulator based in the same country as Nordea. The other countries are left with systemically important branches, but little supervisory clout.
Sweden has consistently argued that it needs stricter rules to protect taxpayers from a financial industry that's about four times the size of GDP. Nordea is itself the product of a state-engineered bailout that happened in the 1990s.
According to von Koskull, failure to come up with a more harmonized regulatory framework in the Nordic region defies the logic of the single market.
“What was the European single market all about?” he said. “Wasn't it that we would have a single market for goods and services where everybody can compete with the same regulations and that was the vision, and we kind of haven't had it.”
For now, Ingves of the Riksbank and Basel committee says it will be up to the Single Supervisory Mechanism of the European Central Bank to deal with Nordea. “If banks start moving around in order to dilute the rules that are in place, that wouldn't be a good thing,” he said. “If that were to happen, risks would go up for everybody.”
He urged regulators to “catch up with what's happening on the private-sector side” and, given the pan-European future of banking, to ensure rules are set in a way that doesn't ultimately “increase risk in the system as a whole.”
To contact the reporters on this story: Kati Pohjanpalo in Helsinki at kpohjanpalo@bloomberg.net, Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net.
To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Jonas Bergman
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