prop · GX0330en · 2009-10-13 00:00:00 — However, in the present situation, further deliberations must be conducted before the two financial support systems can be merged. The Government therefore intends to to the Riksdag in this respect in 2011. The structure of the stability fee In order to achieve a financing system that is sustainable in the long term, fund holdings must eventually correspond to the total costs that could be incurred during a major banking crisis. The preparatory works for the Support Act indicate that the method for estimating these costs must be based first on the risk of having to use the financial support system, and second the anticipated impact on the system. It is expressed in the preparatory works that these factors are difficult to estimate. The costs incurred by the government as a consequence of the 1990s bank crisis have been used by way of comparison. According to estimates, these costs amounted to three to four per cent of gross domestic product (GDP), although it was possible to recover a significant proportion of these costs afterwards. Several other European countries (including and ) that established crisis funds during the autumn of 2008 were mentioned as another comparison. These funds are intended to correspond to between two and four per cent of the respective country's GDP (Government 2008/09:61, p. As stated above, the Government considers that the financial support systems established under the Support Act should be combined with the deposit guarantee system in the future. The preparatory works for the Support Act noted that the objective was to accumulate holdings in the stability fund that should, together with funds that it is estimated could be transferred from the account set up under Section 15 of the Deposit Guarantee Scheme Act, achieve an average value of 2.5 per cent of GDP within a period of 15 years (Government 2008/09:61, p. The Government also concluded that in order to achieve this objective, funds excluding the fees to be charged under the Deposit Guarantee Scheme Act should be deposited in the stability fund each year that in the current situation amount to at least billion (Government 2008/09:61, p. 48 f.). Government 2009/10:30 The guarantees that can be issued under the Support Act can at most comprise the credit institutions' total obligations, with the exception of certain subordinated liabilities, for which reason there is justification to allow these obligations to constitute a basis for calculating the stability fee. In order to be able to calculate the fee in a simple way, the circumstances reported in the balance sheet of a party required to pay the fee should normally form the basis of the supporting authority's computation. The 'liabilities' side of the balance sheet contains two main categories: liabilities and equity. A characteristic of a 'liability' is that the undertaking has a present obligation. Liabilities that can only be measured using estimates are referred to as 'provisions'. 'Untaxed reserves' are reported between the items 'provisions' and 'equity'. Untaxed reserves are various tax-related provisions made by the undertaking (such as excess depreciation on equipment and provisions for the tax allocation reserve). Pledged assets, contingent liabilities and certain commitments are included as memorandum items on the balance sheet. These items constitute potential obligations that do not meet the requirements for being reported as a liability or a provision. It was stated in the preparatory works for the Support Act that the fee basis should comprise the respective institution's balance sheet total, with a deduction for reported shareholders' equity, subordinated liabilities and that part of untaxed reserves that constitutes shareholders' equity (Government 2008/09:61, p. Another way of expressing the same thing is to say that the fee basis should constitute the company's liabilities and provisions (the company's obligations). As stated by , the statutory wording should explicitly state that it is exclusively the liabilities and provisions that are referred to and also that it is appropriate to use the same terminology as contained in the Annual Accounts Act (1995:1554). As regards the deduction for subordinated liabilities, it should be specified that this deduction is limited to such subordinated debt securities as can be included in the capital base of a credit institution. The following has been discussed as regards the item 'untaxed reserves'. The item 'untaxed reserves' constitutes neither a liability nor equity in an undertaking's balance sheet. When preparing consolidated accounts, untaxed reserves are actually split into one part that refers to equity and the remainder which refers to the undertaking's tax liability. Furthermore, the 'equity portion' of untaxed reserves forms part of a credit institution's capital base (see Chapter 3, Section 2, item 3 of the Capital Adequacy and Large Exposures Act [2006:1371]). However, the fixed tax part of untaxed reserves, where there is also uncertainty about whether, and when, the tax credit will be added back as taxable income, cannot be deemed to constitute a liability or provision, either in a legal or informal sense. Untaxed reserves should consequently not form any part of the basis on which the stability fee is calculated. As stated by , this should also be explicitly stated in the statutory wording. Government 2009/10:30 Another matter that should be taken into account when calculating the fee basis is liabilities to member companies within the same group. Loans and sales between group companies give rise to receivables and In order to avoid fees being counted twice, liabilities to a parent company or a subsidiary that is also required to pay the fee must For instance, a group of companies that centralises its borrowing would be adversely affected if this type of liability could not As stated by , the statutory wording should also clarify the definition of the term 'group'. meaning of 'group' is the same as that contained in the Annual Accounts Act (1995:1554), this should be stated in the statutory wording. In summary, it is proposed that the fee basis should comprise the liabilities and provisions of the party required to pay the fee at the end of the financial year, with a deduction for certain group loans and and consider that the fee should be based on the obligations of the entire group, as the stability of a systemically important bank is not restricted to a particular country or solely to parent banks, rather the bank is expected to discharge its obligations regardless of where they have arisen in the group. international boundary demarcation issues, the point of departure is that government support should only be provided to Swedish legal subjects that are subject to Swedish regulation and supervision. It follows, for example, that a company based abroad, despite being the subsidiary of a credit institution based in , cannot be covered by support measures under the Act (Government 2008/09:61, p. support provided to a Swedish parent company could also indirectly benefit a foreign subsidiary. However, in the event that lending by the foreign subsidiary is financed by loans from its parent bank, the parent bank may also need to pay a stability fee for its borrowing to provide Attention within the EU is increasingly focusing on the responsibility of national authorities to act with a view to resolving cross- border crisis situations. The Government hopes that this work will result in some common rules for possible government intervention in the event of cross-border systemic crises. However, when an institution operates in several countries, this must be preceded by discussions between the countries involved and their national authorities concerning the allocation of costs. Pending this, it should only be possible for Swedish institutions to be the subject of support measures, and the stability fee should be based on the obligations of the company required to pay the forming part of foreign-owned groups, where the group's borrowing is guaranteed by the foreign state for a fee, are discriminated against, as when the fee basis for the stability fee is calculated, they cannot make deductions for intra-group liabilities to their foreign owners as is the case for institutions that form part of Swedish groups. considers that, when determining the fee basis, intra-group liabilities should be deductible regardless of whether this involves foreign or Government 2009/10:30 The type of financial support system established under the Support Act is a national system per se, as support can only be provided to undertakings based in and because the system is financed by the fees paid by such undertakings. In light of this, it would be unreasonable to allow deductions from the fee basis for intragroup liabilities to foreign companies even if they in their turn for a fee paid to a foreign state should have a guarantee for their borrowing. This would presuppose that support initiatives are co-ordinated internationally, which is not currently the case. Charging the fee on a quarterly basis might be considered. However, this would require considerable administrative procedures where credit institutions would be obliged to compile and submit the information required to calculate the stability fee every quarter. It is also important that the basis of the fee is fixed. It therefore appears to be more appropriate to apply an annual fee, as is the case under the Deposit Guarantee Scheme Act (1995:1571). The basis should also be derived from the balance sheet adopted by the AGM and examined by an auditor. FAR SRS considers that the accuracy of the fee basis should be examined and confirmed by the auditors of the respective institutions to ensure the accuracy of the basis in the same way as is currently done for the deposit guarantee system. According to FAR SRS, the fee basis includes information that is not directly referable to the annual accounts. For example, the calculation contained in Chapter 7, Section 5 of the Support Act for a guarantee of debt securities cannot be inferred, nor can liabilities to other group companies that are also required to pay the fee. The Government agrees that not all of the information can be drawn straight from the annual accounts. However, the Debt Office does have some of this information in its capacity as a supporting authority. In the opinion of the Government, it is important here to also take into account the additional costs that an institution would incur if it had to undergo another auditor's examination. The Government therefore considers that there is no justification for such an examination. According to the preparatory works for the Support Act, the objective is as stated that the fund's holding should amount to an average of 2.5 per cent of GDP within a period of 15 years. Based on the banks' balance sheets in 2008, it was laid down in the Government that the stability fee would need to be 0.036 per cent of the fee basis in order to achieve this target. The fee basis may vary slightly over time depending on the size of the deductions in respect of group liabilities and the performance of the banks' operations. The Government is still of the view that the fee should until further notice be fixed annually for each credit institution at 0.036 per cent of its fee basis in order to achieve the target for the size of the fund. As mentioned above, the amount of the fee should be reduced by half for the first two years 2009 and 2010 as the market situation has not completely stabilised. Government 2009/10:30 Should the stability fee be risk differentiated? It is stated in the preparatory works for the Support Act that in order to provide incentives and be fair, it is important that the fee for every credit institution reflects the probability of an institution failing. A fee that reflects the risk will reduce the institution's willingness to assume this risk, and an institution that is more likely to incur costs for the system will pay a higher fee. The fee should therefore encapsulate the risks relating to the assets of the institution and how well the assets and liabilities are matched, and similarly whether there are obligations outside the balance sheet. The fee should also embrace factors such as the potential for profitability and a functioning management structure (Government 2008/09:61, p. However, further investigation and discussions are required to design an appropriate structure for the differentiation of risk. For this reason, risk differentiation of the fees should be postponed until the above- mentioned amalgamation with the deposit guarantee system can take The Government therefore intends to to the Riksdag prior to 2011 with a new proposed structure for the fee. Most of the consultation bodies support the Government reverting with a proposal for a risk-differentiated fee. However, Nordea and consider that such a fee should already be charged from the outset, taking account of the risk assumed. They consequently propose that the fees should be based on risk-weighted assets in accordance with the applicable capital adequacy rules. In its report entitled 'Reformed system for deposit guarantee scheme' (Swedish Government Official Reports SOU 2005:16), the Risk Guarantee Inquiry examined different pricing models for risk The report concluded, among other things, that capital adequacy does not encapsulate the variables that can be taken into consideration by a rating or option model, such as the earning capacity of A review is currently being conducted of the existing capital adequacy rules both within the EU and internationally, for example as a result of these rules having failed to capture the liquidity risks of credit For a fairer picture, the Government therefore considers that aspects related to earning capacity, matching between assets and liabilities, obligations outside the balance sheet and a functional management structure should also be taken into consideration, in addition to the factors currently being reviewed within the framework of the capital adequacy rules. The effects arising from intra-group transactions must also be considered. considers that a more in-depth investigation is required before a proposal for a risk-differentiated fee can be presented. Which institutions should pay the fee? It is stated in the preparatory works for the Support Act that there is strong justification for stakeholders falling within the ambit of the government support system to also finance the costs that arise Government 2009/10:30 (Government , 2008/09:61, p. The Support Act covers credit institutions as well as such undertakings, based in , that have been set up by a credit institution as a stage of reconstruction. institution' means banks and credit market undertakings under the Banking and Financing Business Act (2004:297). In contrast to that stated by , savings banks are also included. The financial support system established under the Act may be expected to directly or indirectly benefit all of these institutions and Among other things, more stable financial markets will mean an improvement in the financing opportunities for all credit It is therefore reasonable that all credit institutions and undertakings covered by the Act also participate in financing the various support measures by paying a stability fee. has objected to this in both its consultation response and written communications, and is of the opinion that the stability fee should only be paid by those institutions that actually receive support, primarily under the . Otherwise, the scope of the programme, which is governed by the Government Guarantees to Banks and others Ordinance (2008:819), must be extended to cover all parties paying the stability fee. also considers that the delimitation in the said ordinance would entail competitive disadvantages and comprise an impermissible restriction to the provisions of the considers that the precondition under the Support Act, requiring a serious disruption of the financial system for support to be provided, should be The Savings Banks Association considers that savings banks should be entitled to a capital infusion on the same terms as other As a result of these views, the Government wishes to state the following: all institutions required to pay the stability fee can receive For example, a credit institution may apply to the Swedish National Debt Office for support in the form of a capital infusion under the Government Support to (2008:820). However, a precondition for being granted government support is that it is needed to counteract the risk of a serious disruption to the financial This precondition ensues directly from the Support The Government does not consider that any reasons have been given that justify the removal of this precondition for support. Support under the Infusion Programmes, which is regulated in the above-mentioned Government Guarantees to Banks and others Ordinance and the Capital Contributions for Solvent Banks, etc. Ordinance (2009:46), can be provided to those categories of institution that are currently regarded as systemically important. reason for the systemic risk in this context being assessed for each category instead of individually is to ensure that the programme is implemented in an efficient and predictable way. Furthermore, a stable financial system would benefit all market stakeholders. support can be provided to all credit institutions under the preconditions Government 2009/10:30 prescribed by the Support Act. The fact that certain kinds of support can only be provided to certain institutions cannot be deemed to entail an impermissible restriction of the provisions of the Support Act. does the Government consider that the competition issues raised by the Association justify extending the group of entities that can receive support under the Infusion Programmes. These programmes are considered to be necessary to maintain financial stability and have as far as possible been structured to avoid any negative impact on competition. Extending the scope of these programmes will increase the central government's level of commitment and risks without having any major impact on financial stability. However, for reasons of competition, the aim of support measures should not be of a permanent nature. The Swedish objects to the fee only being charged to Swedish parent companies and not, when applicable, subsidiaries abroad, as this does not reflect the overall risk of the institution and there is also a risk of this promoting the creation of suboptimal legal arrangements for the operation. As the Government has stated above in the section on the structure of the stability fee, the point of departure is that support should only be provided to Swedish legal subjects and consequently a stability fee should only be charged to the same group of entities. However, discussions are currently being conducted within the EU on the issue of the responsibility of national authorities to act with a view to resolving cross-border crisis situations. In this context, matters concerning the distribution of costs in the event of a potential crisis between the countries also need to be discussed. Tax or fee? As mentioned above, the Government proposes that a stability fee should be paid by all credit institutions covered by the Support Act. However, the question is whether the stability fee should be regarded as a tax or a mandatory fee. The preparatory works for the Instrument of Government state that a tax may be characterised as a mandatory contribution to public institutions without any direct consideration in return, whereas a fee is usually paid for a specified consideration provided by the public institutions (Government 1973:90, p. However, it is possible for a monetary levy to have the nature of a fee in certain cases and not a tax, even if no specified consideration is provided in return; for example, if the levy is according to special rules entirely passed on to the sector of industry covered by the regulation. It is proposed that a stability fee be charged to all credit institutions covered by the Act. A precondition for a credit institution receiving support under the Act is that it "is needed to counteract a risk of serious disruption to the financial system in ". The purpose of the stability fee is to build up the stability fund. Furthermore, the aim is that credit institutions adversely affected by a serious financial crisis may gain access to the monies in the stability In the opinion of the Government, the credit institutions can Government 2009/10:30 thereby be deemed to have consideration provided under such circumstances, and consequently the stability fee should be deemed to comprise a fee and not a tax. Certain matters concerning fees Penalty interest should be imposed on fees that are not paid on time and based on the amount of the unpaid stability fee. Penalty interest should be calculated according to an interest rate corresponding to the reference interest rate applied by the Riksbank at any given time under Section 9 of the Interest Act (1975:635), plus eight percentage points. Penalty interest that is paid shall be deposited in the stability fund. A financial year shall normally comprise twelve months. year for a credit institution or other undertaking required to pay a stability fee covers a period of time that is longer or shorter than twelve months, the fee should be increased or reduced respectively in proportion to the length of the financial year. Chapter 8, Section 1, first paragraph of the Support Act states that credit institutions and undertakings referred to in Chapter 1, Section 2 of the same Act shall provide the supporting authority with the information that it requires for its operation. This obligation to provide information also relates to such information that the supporting authority needs in order to be able to calculate and determine the stability fee. Comparison with corresponding systems in the EU Several consultation bodies point out the importance of conducting a review of the proposed charging system in the near future and it being compared with corresponding systems in other EU countries to avoid competitive disadvantages arising for Swedish undertakings. risk of the fees and thereby the costs for Swedish undertakings being higher than they are for undertakings in other countries. consultation bodies point out that such a review should be conducted when the market has stabilised. Several consultation bodies emphasise that compatibility with EU principles concerning, for instance, the freedom of and competition neutrality may be questioned and should therefore be investigated. Nordea points out that cross-border groups will be subject to various measures in different countries with associated costs, for which reason the charging system must be structured to avoid double costs for the same measures. The system should be compared with similar systems in other countries in conjunction with the Government reviewing the charging system for the introduction of a risk-differentiated fee and the amalgamation with the deposit guarantee system prior to 2011. However, has chosen a that is based on the inclusion of all credit institutions and these institutions being compelled to fund the maintenance of financial stability by paying fees in advance ('ex ante'), unlike certain other European countries where fees are paid in arrears Government 2009/10:30 ('ex post'). A decisive reason for this choice is that it may be difficult to get the particular institution affected to finance its own situation in the event of a crisis, when funds are required. The cost will then, in any case initially, be borne by the central government (taxpayers) instead.