(Bloomberg) -- Sweden's banking lobby has crunched the numbers on the cost of operating in the biggest Nordic economy, and it says the result is proof the authorities have finally gone “too far.”
Nordea Bank AB, Svenska Handelsbanken AB, Swedbank AB and SEB AB have long complained that tougher requirements in Sweden than elsewhere hurt competition. But a recent proposal by the government to raise bank fees to a resolution reserve (to protect taxpayers from financial crisis costs) is proving the tipping point. Nordea, Scandinavia's only global systemically important lender, is threatening to leave if Sweden moves ahead with the plan, with the rest of the country's bank industry now throwing its weight behind the protest.
“The government has gone too far,” Hans Lindberg, the head of the Swedish Bankers' Association, said by phone. “They have chosen rules that very clearly diverge from the rest of the EU and that obviously doesn't work in the internal market -- it's not sustainable in the long term, and it will have consequences.”
Sweden wants to raise bank fees to the resolution reserve, with no cap on how big it can grow. The banking association calculates Sweden will have amassed 222 billion kronor ($25 billion) to deal with troubled lenders by 2032, which is 10 times more than it would have had if Sweden had used standard EU bank union rules. (To be sure, the 1 percent of guaranteed deposits that the EU targets doesn't reflect Sweden's decision to allow its banks more freedom in setting risk weights.)
Nordea, which has said it may move its headquarters to Helsinki or Copenhagen in protest, estimates that it will need to pay up to 6 billion kronor into the reserve in 2019, which is 12 times more than it paid last year.
Sweden's government says banks generate enough profits to afford the extra cost. The regulator has also noted that lenders, whose combined assets are more than four times the size of the economy, have benefited from the assumption of a state guarantee. The higher regulatory costs that the industry bears in part reflect that state protection, the argument goes. The guarantee is reflected in higher credit ratings and lower funding costs.
Also, Swedish banks tend to deliver bigger rewards to their shareholders. CreditSights estimates that the median return on equity for Europe's 30 major banks was 6.3 percent last year, or roughly half the level at Sweden's biggest banks.
But the latest stand-off between Sweden's banks and the country's authorities is tenser than previous disputes. Lindberg at the bankers' association says the higher resolution fee “distorts competition pretty significantly” and gives banks outside the country “a significant competitive advantage.”
If Nordea moves its headquarters because of the higher fee, its Swedish branch would operate within a laxer regulatory framework than its competitors in Sweden, Lindberg said.
“That ultimately means that the government's proposal undermines Swedish authorities' own efforts to safeguard financial stability,” he said.
Denmark's Business Minister Brian Mikkelsen told Bloomberg he wouldn't take any steps to firm up financial regulation in his country if Nordea should move to Copenhagen. Bloomberg calculations show that would saddle the Danes with a bank industry with assets of well over five times gross domestic product. In Finland, the regulator said Nordea might be better off answering to the single supervisory mechanism that operates inside the euro zone.
The Swedish Competition Authority this week sided with the banks, warning the government that its fee proposal risks distorting competition. The government has so far refused to budge. Financial Markets Minister Per Bolund says he doesn't want Nordea to move, but he won't back down from measures he sees as vital to protecting taxpayers. The government declined to comment for this story.
Sweden's tough talk on banks also seems to be affecting Stockholm's allure as a financial center. In the latest Global Financial Centres Index, the Swedish capital sank to number 46 from 37 a year earlier, its lowest ranking ever and far from its peak position of 25 in the spring of 2012. It was even overtaken by the capitals of Estonia and Latvia.
The Stockholm Chamber of Commerce has said that a meaningful goal for the Swedish capital would be to be among the top five ranked financial centers in Europe by 2020. The latest ranking puts Stockholm in 15th place, behind London, Zurich, Frankfurt, Paris, Warsaw and even Jersey.
--With assistance from Peter Levring
To contact the reporters on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net, Hanna Hoikkala in Stockholm at hhoikkala@bloomberg.net.
To contact the editors responsible for this story: Tasneem Hanfi Brögger at tbrogger@bloomberg.net, Celeste Perri at cperri@bloomberg.net, Frances Schwartzkopff
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