A natural counterparty for the Swedish banks could be the Swedish life insurance and pension companies. These companies have long-term liabilities in kronor in the form of pension savings that they partly invest in assets abroad. At present, these companies are not active on the long-term currency swap markets to any great extent. The Swedish banks are therefore dependent on a tight circle of counterparties on the currency swap markets. A small and concentrated market means in turn that there is a considerable risk of disruptions and contagion effects. 6  BIS central bankers’ speeches  Long-term assets and short-term funding in foreign currencies create risks Swedish banks have substantial assets in foreign currencies and also have a deposit deficit, that is they are dependent on market funding. As a large part of this market funding is short term, a liquidity risk in foreign currency also arises. The US dollar is a currency for which this risk is clear. Following the collapse of Lehman Brothers, when the dollar market was practically closed for a while, the Riksbank needed to lend the equivalent of almost 250 billion kronor in US dollars to the banking system to prevent the liquidity risk spreading to the real economy. However, as the Riksbank cannot create liquidity in foreign currencies in the same way as it can in Swedish kronor, there are limits on the size of the liquidity risks the banks can take in foreign currencies without posing risks to financial stability.
This will be built up in good times, when credit growth is higher than normal, with the aim of creating airbags to protect the banking sector in troubled times. So far, this is the instrument on which international agreement has been reached in the field of macroprudential policy, that is a policy that comprises measures to prevent financial crises that are directed at the system as a whole. A leverage ratio requirement will also be introduced under which, irrespective of risk weights, a bank's assets may not exceed 33 times its own capital. A leverage ratio requirement represents an extra safety measure that also limits the banks’ possibilities to use internal risk models to actually keep risk weights down. Basel III also sets quantitative standards for the banks’ liquidity, a short-term (Liquidity Coverage Ratio, LCR) and a long-term (Net Stable Funding Ratio, NSFR). The short-term measure means that every bank should have sufficient liquid assets to survive for at least 30 days in a stressed scenario. The long-term measure, in principle, limits the gap between the maturity of a bank’s assets and the maturity of its liabilities. The standards stipulated in the Basel III Accord will be implemented in national legislation during the 2010s and should be implemented in their entirety by 2019, with several interim targets along the way. 2  BIS central bankers’ speeches  Establishing better regulations on the banks’ capital and liquidity represents a major step forward.