The four major Swedish banks – Nordea, SEB, Svenska Handelsbanken and Swedbank – all pass the European Banking Authority stress test by a comfortable margin according to an assessment by Finansinspektionen (FI).
This year's stress test includes 91 European banks. The exercise was carried out by the European Banking Authority (EBA) in conjunction with the European Central Bank (ECB), the EU Commission and the national supervisories of EU member states.
The stress test consists of a hypothetical scenario during the period 2011-2012 that assumes weak economic development, higher interest rates, falling stock markets, falling real estate prices and substantial losses on holdings of financial instruments and government debt in the banks' trading books. The exercise is based on a common macroeconomic scenario that makes specific assumptions about GDP, interest rates, stock markets, real estate prices, etc., for each country.
The four major Swedish banks – Nordea, SEB, Svenska Handelsbanken and Swedbank – all pass the EBA stress test by a comfortable margin. The banks show a Core Tier 1 ratio including transitional rules in the range of 8.6 – 10.5 per cent and a Tier 1 ratio in the range of 10.1 – 12.2 per cent at the end of the stress test scenario, which is well above the current regulatory minimum.
As was the case in last year's stress test, which was carried out by EBA's predecessor, CEBS, it is FI’s assessment that the major banks have enough capital to weather even more severe scenarios than what was assumed in the stress test. Thus, there is no need from a regulatory perspective for any of the major banks to strengthen their capitalisation under the current regulatory framework.
However, in the event of even more extreme scenarios, the market may require even higher capital ratios, which means that the banks must also have capital contingency plans for highly unlikely scenarios. A capital contingency plan describes concrete and realistic measures that can be taken to strengthen capital within a reasonable time frame. It is FI’s assessment that Swedish banks currently have such contingency plans readily available.
The EBA stress test includes 65 per cent of the EU banking sector and at least 50 per cent of the consolidated assets in each country’s respective banking sector.
