af Jochnick: The completion of Basel III – the start of something new
“The reforms of banking regulation, Basel III, that lie ahead will strengthen global financial stability and this will be good and important for Sweden, which is a small and open economy”. This is said by First Deputy Governor Kerstin af Jochnick in a speech held at the Swedish Centre for Business and Policy Studies on Tuesday.
Date: 31/01/2017 07:30
Speaker: First Deputy Governor Kerstin af Jochnick
Place: Swedish Centre for Business and Policy Studies/SIFR Finance panel, Stockholm
The Basel Committee has been working on reducing the risk of financial crises since it was first established. This work is important as financial crises lead to substantial costs for society and often to permanent falls in GDP and employment. Ms af Jochnick points out that the work is also an ongoing process, as the regulation of banks needs constant revision apace with developments in the banks and in society.
Stable banks contribute to financial stability
Smoothly-functioning international cooperation between central banks and financial supervisory authorities is very important to financial stability in a small and open economy like Sweden's. It also creates good conditions for the banks to conduct their operations in several countries, if the regulation in these countries meets certain minimum standards and the supervisory authorities are in tune with one another.
Ms af Jochnick emphasises that the starting point for the Basel Committee's work is that well-capitalised banks benefit financial stability and contribute to a positive development in society. Such banks are more resilient to losses and have greater capacity to obtain market funding during times of financial unease.
Swedish authorities determine the effects of Basel III
However, it is much too early to say yet exactly how the new regulatory framework will affect the capital requirements for Swedish banks, said Ms af Jochnick. The effects will mainly depend on how Sweden's particular national requirements change in the future and not on the increase in the Basel Committee's global minimum requirement. At present, Finansinspektionen (the Swedish financial supervisory authority) and other authorities assess that Swedish banks need more capital than the current minimum requirements supply. But the special Swedish requirements are not subject to the international agreements. It is largely the Swedish authorities that will determine how, more exactly, Basel III will affect the Swedish banking system.
"My assessment is that we should review our national requirements for the Swedish banks' capital and evaluate what level is appropriate, in the context of Basel III being introduced in Sweden," concludes Ms af Jochnick.