Erik Thedéen: Swedish perspectives on the Banking Union

Erik Thedéen, Director General of Finansinspektionen, took part in a seminar on “The Banking Union from a Nordic-Baltic perspective” arranged today by SIEPS and the Swedish Government’s “Committee on Potential Participation in the European Banking Union”.

Date: 8 March 2019
Speaker: Erik Thedéen
Meeting: The Banking Union from a Nordic-Baltic perspective

The issue of Sweden's potential participation in the Banking Union has become current because of the public inquiry tasked with analysing the potential consequences of such participation. Finansinspektionen is also assisting the commission of inquiry with expertise and perspectives. A similar public inquiry is underway in Denmark.

"In my view, Sweden as a country should first decide on the larger question: should we, in the long run, participate in the Eurozone, or should we remain outside? This is a political decision on which I will not voice an opinion. But, in my view, the decision of whether or not to participate in the Banking Union should follow from our stance as a nation with regards to the single currency. However, I will of course take the findings of the public inquiry into account", said Erik Thedéen.

Generally, we can see a trend of increasing convergence in banking supervision and regulation within the EU, which is independent of Sweden's decision on Banking Union participation. The new banking package will result in less national flexibility in several areas, regardless of whether a country participates in the Banking Union or not. The ability of cross-border banks to change domicile from outside the Banking Union to inside also limits the scope for non-member supervisory authorities to deviate too far from the course set by Banking Union regulators.

That said, participation in the Banking Union would affect the supervision of Swedish banks. Generally speaking, there are advantages and disadvantages to centralised supervision. We can see that the supervision delivered by SSM is of a very high quality. The sheer size of the organisation, and the number of institutions supervised, creates substantial institutional and human capital and more expert resources than any single supervisory authority can muster.

On the other hand, as a non-participant in the Banking Union, we are able to conduct our activities with more regard to specific national and regional circumstances. We also have the advantage of understanding our banks and their business models very well. For example, compared to European peers, Nordic and Swedish banks have large amounts of residential mortgages on their balance sheets. We have identified this as one of the key risks in our banking sector and have addressed it accordingly by introducing minimum risk weights for residential mortgages. We believe this has been good for financial stability in the Nordic-Baltic region, but it is not obvious that a centralised supervisor would have acted in the same manner.

From Finansinspektionen's point of view, we actually have rather limited experience in what it is like to work within SSM and SRM. On the other hand, we have extensive experience in working with these institutions. In particular, we work very closely with SSM on the supervision of our cross-border banks in the supervisory colleges.

We have a very good working relationship with SSM on banking supervision, including joint decisions on capital and liquidity requirements, on-site inspections and so on. We share – broadly – the same regulatory framework and the same objectives.

In terms of governance, Sweden will have an influence on SSM. SSM's Supervisory Board currently has 25 voting members. If Sweden were to be treated like existing members, it would be the 26th. Finansinspektionen would represent Sweden as a voting member, and the Riksbank would be an observer without a voting right. However, Sweden will not have a voting right on the ECB Governing Council, which has the right to block Supervisory Board decisions.

Of course, voting rights are only half the story. In normal times, we would probably have informal means of influencing the SSM's agenda on matters that are important to us. However, in my experience, official institutional structures are very important in times of crisis. This is when you usually fall back on them.

At the end of the day, a Banking Union participant who has not adopted the Euro as its currency will not have the same influence on decision-making as a Euro country. The Banking Union was created to solve certain problems in the Eurozone. Although convergence on the European level often makes sense, and although the Banking Union is theoretically open for participation from non-Euro countries, the fact remains that it is intimately coupled with the single currency.

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