Scandinavia Seeking To Reduce Banking Leverage

Scandinavia is once again showing it won’t wait for the European Union when it comes to banking regulation as the AAA rated region moves to curb financial industry leverage.

After beating the EU in setting rules for too-big-to-fail banks, Sweden and Denmark are now exploring the option of imposing a leverage ratio years before most of the rest of Europe does so, and with tougher limits on gearing than recommended by the Basel Committee on Banking Supervision.

Eagerness to regulate in areas neglected by the EU is growing among Europe’s richest nations, where record-low interest rates are distorting asset prices. A leverage ratio — a measure of capital to assets before they’ve been weighted for risk — will help national regulators catch banks understating loss probabilities, said Jesper Rangvid, the head of Denmark’s government-appointed crisis commission. His report, released last week, showed excessive leverage at Danske Bank A/S almost destabilized the entire Danish economy in 2008.

“At the moment, it is difficult for the Financial Supervisory Authority,” Rangvid said in an interview. “That’s why we need some minimum level so that a bank holds a certain level of equity in the end.”

Bloomberg

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.