Norway's government has decided to demand greater capital buffers of DNB Bank, Nordea Bank Norge and Kommunalbanken following the implementation of a rule affecting financial institutions with assets equivalent to 10% or more of mainland Norway's GDP.
Norway’s government has decided to demand greater capital buffers of DNB Bank, Nordea Bank Norge and Kommunalbanken following the implementation of a rule affecting financial institutions with assets equivalent to 10% or more of mainland Norway’s GDP.
The rule has been brought in by the Norwegian Ministry of Finance to ensure greater stability in the country’s overall financial system. The demand also applies to any lender with a market share of at least 5% in the country.
The three banks have therefore been deemed “systemically important”, and will need to increase their buffers by 1 July 2015.
Minister of Finance Siv Jensen (pictured*) said: “Certain financial institutions are particularly important for the financial system and the economy. Such systemically important institutions shall fulfil a higher capital buffer requirement in order to reduce the probability of financial difficulties that may have serious negative consequences for the financial system and the real economy.”
The additional buffer is set at 1% of so-called CET1 capital, rising to 2% by 1 July 2016. By then the combined CET1 capital and buffer requirements will be at 12%, and a lower 10% level for other institutions not deemed systemically important.
Besides market share, the Ministry will also look at factors such as size and scope of operations in Norway and other countries, the role in the financial infrastructure, and interconnectedness with the rest of the financial system when determining which institutions will be called on to implemente the higher buffer levels. The Ministry will review institutions annually based on advice from local regulator Finanstilsynet – the Financial Supervisory Authority of Norway.
Norway is not part of the EU, but has drawn up the requirements in line with the EU’s CRR/CRD IV framework and the Basel Committee on Banking Supervision’s framework for dealing with domestic systemically important banks. Additional rules for systemically important institutions are expected going forward, covering areas such as liquidity, funding and recovery plans, in line with work being done by regulators in both Norway and the EU.
According to data from the Ministry, DNB Bank has assets equivalent to more than 90% of Norway’s mainland GDP.
Nordea Bank Norge has assets of around 25% of GDP, and Kommunalbanken of around 15%.
As a share of lending in the country, DNB Bank has about 28%, Nordea Bank Norge about 12% and Kommunalbanken around 7% – all above the 5% determining level under the new regulators.
*Siv Jensen photo by Rune Kongsro