Press release 20 February 2019
At today’s press conference on the Debt Office’s central government borrowing forecast, Debt Office Director General Hans Lindblad addressed the current issues of Brexit as well as the EU Banking Package and BRRD2.
In order for the Swedish National Debt Office to be able to ensure effective management of institutions in crisis, the agency requires the banks to have sufficient capital and eligible liabilities in their balance sheets. In a “hard” or contractless Brexit scenario, a situation may arise in which certain Swedish institutions may not be able to meet the Debt Office’s requirements in the same way as previously. This is because the UK would no longer fall under EU law. The Debt Office is monitoring the situation closely and will examine relevant issues on a case-by-case basis.
“A hard Brexit would be an extraordinary circumstance that could have consequences for the financial sector in Sweden. The Debt Office will handle these consequences in a responsible manner in order to secure stability. This is where the issue of an adaptation period for dealing with potential problems may arise,” says Director General Hans Lindblad.
EU Banking Package and subordinated liabilities until 2022
The Debt Office Director General also addressed the work on the revised regulatory framework for banking crisis management (BRRD2), which is part of the EU Banking Package and under final negotiations within the EU, after which it is to be transposed into Swedish law.
Ultimately, the institutions’ eligible liabilities and own funds shall consist entirely of capital or debt instruments that are subordinated, that is, utilised before other liabilities in the event of write-down or conversion. In this way, it becomes clear that the investors in such instruments, after the shareholders, are the first to bear the costs if the institution fails.
In conjunction with the Debt Office communicating how the current regulations are to be applied, it was announced that the capital and debt instruments used to meet the minimum requirement for eligible liabilities and own funds (MREL) are to be subordinated by 1 January 2022 at the latest. Hans Lindblad comments:
“Due to the review of the regulations, the Debt Office has received questions on when the requirement for subordinated liabilities must be met at the latest. The Debt Office’s response is that 1 January 2022 still applies. Institutions should therefore initiate the issuance of subordinated liabilities that are required. During the phase-in period, the Debt Office will monitor whether the volumes are being built up at an appropriate rate,” says Director General Hans Lindblad.