Basel III and the major Swedish banks’ capital requirements
The Basel III Accord is now complete and is intended to be introduced in full on 1 January 2027. The major Swedish banks’ minimum capital requirements are expected to increase form their current levels as a result of this, but their total capital requirements will continue to be determined by Finansinspektionen, the Swedish Financial Supervisory Authority.
Following the most recent financial crisis, an extensive reform work was initiated within the Basel Committee on Banking Supervision to further strengthen global financial stability, partly by making tougher demands regarding capital and liquidity levels for internationally active banks. This Economic Commentary studies the effects Basel III will have on the major Swedish banks' capital requirements. The parts of Basel III that are expected to affect the major Swedish banks' capital requirements the most going forward are the leverage ratio requirement, the floor for risk-weighted assets and the changes to the framework for the banks' internal models.
The most important conclusions are that:
A future leverage ratio requirement with regard to the major Swedish banks will mean that the minimum required Tier 1 capital level will be 3 per cent of the total assets.
When the coming floor for the banks' risk-weighted assets is fully introduced, the assessment is that the major Swedish banks' minimum Common Equity Tier 1 capital requirements will increase. However, this new minimum requirement for the banks' Common Equity Tier 1 capital is lower than the total Common Equity Tier 1 capital that the major Swedish banks need to meet today. The size of the major banks' total capital requirements will in future depend on how Finansinspektionen (the Swedish Financial Supervisory Authority) chooses to set the requirements for Sweden.
The revision to the framework for the banks' internal models will only marginally affect the major Swedish banks' risk-based capital requirements.
By Tomas Edlund, who works in the Financial Stability Department of the Riksbank.
The Riksbank's Economic Commentaries contain, for instance, short analyses and debate articles. The opinions expressed in Economic Commentaries are those of the authors and are not to be seen as the Riksbank's view.