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EU Capital Requirements Directive: A Guide for Swedish Banks

The European Union’s (EU) Capital Requirements Directive (CRD) has been implemented in Sweden through various regulations, including the Credit Institutions and Securities Companies Special Supervision Act (2014:968), the Capital Buffers Act (2014:966), and the Swedish Financial Supervisory Authority’s (SFSA) regulations.

Capital Requirements

According to the CRD, initial capital required varies depending on the category of institution. For credit institutions, such as banks, the minimum requirement is €5 million, while for savings banks it is €1 million. The SFSA has also set a systemic risk premium of 5% of Common Equity Tier 1 capital for Sweden’s three largest banks.

  • Minimum initial capital requirement: €5 million (credit institutions), €1 million (savings banks)
  • Systemic risk premium: 5% of Common Equity Tier 1 capital (for Sweden’s three largest banks)

Leverage Ratio

Sweden introduced a leverage ratio requirement for banks in 2021, based on the Basel III Framework. The minimum requirement is 3%, which does not take into account underlying risks in assets. In addition, the SFSA can establish a Pillar 2 guidance requirement on a leverage ratio buffer.

  • Minimum leverage ratio requirement: 3%
  • Pillar 2 guidance requirement: possible

Liquidity Requirements

Swedish banks are subject to liquidity requirements, including the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). These regulations are based on the Basel Committee’s principles on managing and supervising liquidity risks. The LCR requires banks to hold liquid assets sufficient to cover cash outflows over a 30-day period, while the NSFR ensures that banks have stable funding in place.

  • Liquidity Coverage Ratio (LCR): requires banks to hold liquid assets for 30-day cash outflows
  • Net Stable Funding Ratio (NSFR): ensures stable funding

Financial Reporting

Banks in Sweden are required to submit annual reports and interim reports. Annual reports must be filed with the Swedish Companies Registration Office (SCRO), which is responsible for registration and public availability. Larger banks may also be listed on a stock exchange, requiring quarterly reporting on their websites.

  • Annual reports: submitted to SCRO
  • Interim reports: submitted periodically
  • Quarterly reporting: required for listed banks

Consolidated Supervision

The CRD and Capital Requirements Regulation (CRR) provide for measures relating to consolidated supervision. Banks must provide reports with data on a consolidated basis, including liquidity, own-funds, eligible liabilities, capital requirements, leverage, solvency ratios, large exposure limits, and arrangements concerning exposures to transferred credit risks.

  • Consolidated reporting: required by CRD and CRR
  • Data includes: liquidity, own-funds, eligible liabilities, capital requirements, leverage, solvency ratios, large exposure limits, and arrangements concerning exposures to transferred credit risks

Conclusion

The EU’s Capital Requirements Directive has been implemented in Sweden through various regulations, providing a framework for banks to manage risk and maintain financial stability. The SFSA plays an important role in supervising and regulating Swedish banks, ensuring that they comply with capital, leverage, and liquidity requirements.