The Basel Committee is thus introducing quantitative liquidity requirements for banks for the first time. Basel III works with two liquidity measures – one short-term and one long-term. The shortterm measure is based on, in principle, every bank having sufficient liquid assets to survive for at least 30 days. It is difficult to see such a requirement as unreasonable. The long-term measure, in principle, limits the gap between the maturity of a bank’s assets and the maturity of its debts. This limits the duration risk of the bank. …and particularly the regulation of systemically-important banks A particular focus has been placed on systemic risks and the most systemically-important institutions. To a great extent, this is a work in progress. So far, the Basel Committee has  1  2  In principle, Basel III defines Common Equity Tier 1 as share capital and previous profits. BIS central bankers’ speeches  identified almost 30 global systemically-important banks (G-SIBs). The list was published last week and includes one of the major Swedish banks, as you may have noticed. The Committee feels that it is particularly important that these banks have extra strong resilience. Those identified as G-SIBs should thus have an additional capital buffer, the size of which depends on how systemically important each bank is deemed to be on a global level. A framework should be put in place for how the authorities in different countries should handle them if they find themselves teetering on the brink.
The costs of higher capital adequacy requirements are limited and largely private, as opposed to the true economic costs. The advantages in the form of a safer banking system are considerable. A reduced risk of financial crises is good for the real economy, good for taxpayers and also good for the banks’ shareholders. The Riksbank will soon present a report that clearly shows that the benefits of higher capital adequacy requirements exceed the costs. An increased capital adequacy requirement may also need to be matched by a tighter leverage ratio requirement. The European Systemic Risk Board (ESRB) has recently submitted recommendations covering lending in foreign currency. We could see the risks of this type of lending to households at close quarters in the Baltic countries a few years ago. A few of the ESRB’s recommendations are (i) better consumer information and credit reviews of borrowers, (ii) taking exchange rate risk into consideration in the national capital adequacy requirements, and (iii) supervision of the risks in liquidity management. Swedish banks need to limit these risks better in the future. The Swedish banks’ liquidity measures need to take into account that it can be difficult to obtain certain currencies in stressed situations. Basel III’s short-term liquidity requirements also need to be met on a per-currency basis. Furthermore, we are examining whether the Riksbank’s reserve requirement can play a part in this regard. The low Swedish risk weights are a cause for concern.