Nordea Bank Abp just dropped off the list of global banks deemed too big to fail, but that doesn’t mean it can hold less regulatory capital. The Financial Stability Board removed Nordea from a group it defines as global systemically important banks (G-SIB). A G-SIB needs to have more capital than other banks, so the assumption is that no longer being a G-SIB means a bank can get away with having less capital.
But that doesn’t apply in the case of the Nordic region’s biggest bank. Nordea has been subject to a 1 percent G-SIB buffer. That capital requirement was dwarfed by Sweden’s 3 percent systemic risk buffer. In October, Nordea shifted its headquarters from Sweden to Finland, where an equivalent systemic risk buffer applies. In other words, removing the G-SIB capital requirement will make no difference.
Nordea has reduced its balance sheet, simplified its structure and shed its riskiest assets. The FSB’s decision to remove it from the list of global systemically important banks takes effect in 2020. Finland’s financial watchdog indicated it will continue to treat Nordea as a bank that’s too big to fail.
In the Nordic region, “Nordea is the biggest, its exposure is the biggest and potential impact on the system is the biggest, and that’s why it was set the highest buffer,” said Samu Kurri, who heads the financial analysis and operational risks department at the Finnish Financial Supervisory Authority.
“Should anything happen to Nordea, it would have a larger impact on the system than if something happened to other banks,” Kurri said.
Nordea declined to comment on its capital requirements.
The bank has said it will comply with the Swedish FSA’s prudential measures even after its move to the euro zone as it awaits new guidance from the European Central Bank, expected late next year.