Swedish Financial Supervisory Authority (SFSA): Banking Regulation

Capital Adequacy Framework for Banks

The Swedish Financial Supervisory Authority (SFSA) is responsible for overseeing and enforcing compliance with the capital adequacy framework for banks in Sweden. This includes ensuring that banks maintain a minimum 8% capital ratio, as well as various capital buffers such as:

• Capital Conservation Buffer: A buffer to absorb losses during periods of stress
• Institution-Specific Countercyclical Capital Buffer: A buffer to counteract asset price inflation and other systemic risks
• Systemic Risk Buffer: A buffer to mitigate the risk of a bank’s failure affecting the entire financial system
• Buffers for Systemically Important Institutions: Additional buffers required for banks that are considered systemically important

Supervisory Actions in the Event of Undercapitalization

In the event of a bank becoming undercapitalized, the SFSA can take supervisory actions, including:

• Orders to reduce exposures
• Implementation of certain parts of the bank’s recovery plan

If the bank’s financial position continues to deteriorate, contractual write-downs or conversions of capital instruments may occur. The SFSA also has the power to write down or convert debt instruments.

Resolution Procedures for Systemically Important Banks

In the event of insolvency, systemically important banks would be subject to resolution procedures. These procedures are designed to minimize disruption to the financial system and ensure that critical functions continue uninterrupted.

Non-systemically important banks, on the other hand, would be wound down through ordinary bankruptcy procedures.

Restrictions on Foreign Ownership

There are no restrictions on foreign ownership of banks in Sweden. However, entities holding a controlling interest in a bank must be approved by the SFSA. The SFSA will consider factors such as:

• Reputation
• Financial strength
• Potential impact on money laundering or financial crimes

Regulation of Entities Controlling Banks

Entities that control banks have no restrictions on their business activities as long as they do not impact the general ownership criteria. However, the management of the owner (if a legal entity) must be approved by the SFSA, and changes to the management must be reported.

Consolidated supervision applies to financial holding companies or mixed financial holding companies, which triggers additional regulatory requirements.

Liability for Shareholders

In the event that a bank becomes insolvent, shareholders may be liable for losses incurred by the company if they have acted with intent or are deemed grossly negligent. The SFSA also has the power to reduce a bank’s share capital, incurring losses on direct shareholders, subject to the ’no-creditor-worse-off’ principle.