The reason for this, as I said, is that in Sweden and abroad, it is at this maturity that a sufficient number of transactions are carried out. For the rate to be credible and representative, there needs to be a steady flow of enough transactions on which to base the calculation. The interbank rates can be developed at longer maturities even with a very limited transaction base, precisely because there is scope for the banks' own judgements – but this is also what makes them lacking in objectivity and easier to manipulate. Alternatives to longer-term interbank rates being developed In order to address this problem, central banks in several countries are now working to ensure that the new reference rates can also replace interbank rates in contracts with longer maturities. In principle, it is possible to create forward-looking rates based on traded derivative instruments with the new rates as a base. However, in most countries the derivative markets based on the new reference rates are not yet large enough to form the foundation for reliable forward-looking reference rates. A simpler way forward is to calculate backward-looking average rates based on the history of the transaction-based reference rate. The average rates then show the average return over a given period, including a compound interest effect, based on daily SWESTR values during the period. The central banks of the United Kingdom, Norway and the United States and the ECB have already begun to publish backward-looking average rates or indices that can be used in a similar manner.
One explanation could be that Swedish banks are just unusually well-capitalised. However, a quick look at the core capital ratios of European banks shows that Swedish banks instead have relatively low capital levels. The only possible remaining explanation is that Swedish banks are not as good at generating income from services other than lending. And right enough the results also reveal that Swedish banks’ non-interest income is among the lowest in Europe (see Figure 2). So what is a European bank investor’s assessment of Swedish banks? Judging by equity market prices there is some scepticism towards Swedish banks. As regards both valuations of their book capital – the price-to-book ratio – and P/E ratios, the Swedish bank shares are trading at a small, but nonetheless clear, discount in relation to the European banking sector. The possible reasons for such a valuation discount are either that the expected profitability is lower for Swedish banks or that they are judged to be riskier than their European counterparts. I think, though, that the latter hypothesis that Swedish banks are comparatively risky can be rejected – Swedish banks’ high credit ratings, low loan losses and stable earnings tend to suggest the opposite. In other words, it seems as if the equity market is sceptical because it judges Swedish banks’ potential for improvement or growth to be limited. The assessment of Swedish banks’ growth potential as limited has several possible explanations, which are more or less benevolent depending on whom you ask.