speech date : 31 january 2017 speaker : first deputy governor kerstin af jochnick venue : centre for business and policy studies, stockholm s v eri g es ri ks ba nk se - 103 37 stockholm ( brunkebergstorg 11 ) tel + 46 8 787 00 00 fax + 46 8 21 05 31 registratorn @ riksbank. se www. riksbank. se the completion of basel iii – the start of something new * the work of the basel committee is important and affects sweden good morning. thank you to the centre for business and policy studies for inviting me here to talk about basel iii and what it may entail for sweden. recently there have been several attempts by different parties to analyse how the basel committee ’ s completion of the basel iii accord may affect the global financial system. some people question whether it is really necessary for the regulation of banks ’ capital requirements to be amended yet again, and wonder how this will affect, for instance, the swedish banks. as i have recently, in my capacity as member of the basel committee, been involved in discussing various parts of basel iii, i would like to give my own views on the subject today. i hope this will answer some of the questions now being raised. however, i would like to point out from the start that no final agreement on the finalisation of basel iii has yet been achieved. still, the main features of the agreement are relatively clear at this point, and the basel committee is now working on the final details. however, i do not intend to focus on the details today, as they are many, but instead on the fundamental blocks on which basel iii is built. the reforms of banking regulation that lie ahead will strengthen global financial stability and this will be good and important for sweden, which is a small and open economy. moreover, it is largely swedish authorities that determine how, more exactly, basel iii will affect the swedish banking system. but i shall begin by providing some perspective on banking regulation in general and the work of the basel committee in particular. and let me point out that what i will talk about today is neither the first nor the last amendment to the regulatory framework for banking operations to see the light of day. the work on developing and revising the bank regulations is a continuous operation and should be so. i usually 1 * i would like to thank tomas edlund for his help with this speech. compare this task with cycling ; if you stop

it is therefore a good idea to have a floor for how low the banks ’ internally - calculated capital requirements may be in relation to the capital requirements for small and medium - sized banks. this is a reasonable balance to ensure that competitiveness is not disrupted. so the future regulation of the banks ’ capital levels will probably contain a leverage ratio requirement, a risk - weighted capital requirement and a floor for risk - weighted assets. some of you may wonder why so many different types of capital requirement are necessary and the answer is quite simple : because each individual requirement has its own strength that offsets the weaknesses in the others. let me give some examples. as i mentioned earlier, a floor for risk weighted assets is needed to prevent the risk weights declining too much. in addition, a leverage ratio requirement is needed to limit the banks ’ capacity to take on too much debt. if only a leverage ratio requirement were present, this could give the banks an incentive to move to higher 7 risk assets. to counteract this, we need the current risk - based framework that compensates with a higher capital requirement for higher risk assets. how much capital do the major swedish banks have? let me now finally discuss what all this may entail for the four major swedish banks and discuss some of the claims in the debate on the basel committee's work. to do this properly, we need to know something about the banks ’ current capital situation. figure 1. sweden has a large share of national special requirements source : sveriges riksbank one can describe the major swedish bank's capital levels in a number of different ways. the banks themselves usually state their cet 1 capital ratios as a percentage of risk - weighted assets. the four major swedish banks currently have a total of around sek 2, 800 billion in risk - weighted assets. in comparison, their total assets amount to more than sek 13, 000 billion. the risk - weighted assets are largely calculated with the aid of the internal models i mentioned earlier. finansinspektionen's total cet 1 capital requirement of the major swedish banks is around 18 per cent of their risk - weighted assets, or around sek 510 billion. the major swedish banks currently meet these capital requirements. all in all, they have a cet 1 capital ratio of around 20 per cent of their risk - weighted assets, or sek 550 billion. sek 550 billion may seem a lot, but in relation to the banks ’ total assets it