Today the European Commission (EC) announced its approval of a Swedish recapitalization scheme, announced on February 3, that is “intended to bolster the financing of the real economy by providing capital to banks.” The EC found the scheme to be in line with its previously issued guidance on support measures for banks during the financial crisis.
EU Competition Commission Neelie Kroes stated that “[t]he Swedish recapitalisation scheme should contribute to strengthening the confidence in the Swedish banking sector and, above all, to provide finance to the real economy in these difficult times. The scheme is building on private contributions to the recapitalisation, which gives sound incentives to the markets.”
The Swedish support package permits the government “to provide share capital or hybrid capital to be counted as bank Tier 1 capital.” The Swedish government will only inject capital if the private capital already contributed comprises at least 30% of the total investment. Only after this threshold has been met the Swedish government will “participate in the recapitalisation on the same terms as the private investors.” The recapitalisation measures also contain some restrictions on corporate remuneration. The Financial Supervisory Authority (Finansinspektionen) will “regularly monitor the lending of recapitalised banks towards households and companies in the real economy and provide public reports on a monthly basis.” The Swedish government will also be required to report on a regular basis to the Commission with regard to the scheme’s implementation.
Last week Riksbank, the Swedish Central Bank issued a survey noting the “[o]ngoing decline in economic activity and increasing difficulties ” faced by large and medium sized Swedish companies’ with respect to finding viable sources of funding. Since 2007, the Swedish Central Bank has conducted interviews of companies three times a year in preparation for its Monetary Policy Reports. In the survey, several large companies indicated that there has been a noticeable decline in the lending activities between major international banks to Swedish companies and a withdrawal of banks from the domestic market. These market changes have consequently forced companies to borrow “from Swedish and/or Nordic banks to a greater extent than previously, ” and in other cases has lead to companies "acting as banks for other companies.”