Swedish audit office cites Iceland banking example

The Swedish National Audit Office, Riksrevionen, last week published a report on the problems of the Swedish banks in the Baltic states.

(Article by Ulf Sandmark)

The report is very limited but states that the crisis should have been foreseen and severely criticises the supervisory functions of the Swedish central bank, Riksbanken, and the Swedish Financial Supervisory Authority, Finansinspektionen.

“The credit expansion was extreme with a lending volume increasing 40-70 percent per year 2005-2007 in the different countries,” the report says. Demands for more regulation of the foreign banks from the Estonian financial authorities to the Swedish Financial Supervisory Authority were turned down. The stress tests were too limited, as they only analysed the possibility of an isolated bank crisis in the Baltic states, the report continues.

In the conclusion the authors raise the problem of the unlimited Swedish state guarantee for the banking system, an important statement that shows the necessity in Sweden for an Angelides commission () or an Icelandic bank crisis inquiry commission, and not just a public inquiry about future crises, which the government has launched this month.

The Report states: “The implicit responsibility of the state: The State has an implicit guarantee to support the banking system in the case of crisis. The Icelandic example shows that the guarantee could be unreasonably costly, if the banking sector grows to become very large in comparison to the economy of the country. Today the Swedish state has no tools to limit the size of the banking sector and the implicit guarantee linked to that.

“Because of the dominating role of the Swedish banks in the Baltic payment systems, the Swedish state got an implicit responsibility for these and thereby for the stability of these countries. The development shows that the Swedish state could have an indirect responsibility for the economy of other countries, if the affiliates of the the banks abroad lead a dominating role for them on the credit market.”

This statement comes just a few days after the Minister of Financial Markets Peter Norman in a parliamentary debate pleaded to God that the systemically critical banks should not get into trouble (as it is mainly the owners’ capital that makes up the buffer if there is a crisis), a not-too-assuring safety net for the banking system. Norman said: “The idea with our procedure is that if, something God forbids, the system-critical banks should get into serious problems, it is the stock owners who should get in trouble.”

This article was sent in by Ulf Sandmark MBA, an IceNews reader.
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