Today, the Swedish Ministry of Finance announced several measures it proposes to take as part of a comprehensive stabilization plan intended to “secure financial stability in Sweden and to deal with the negative effects of the global financial crisis.” Sveriges Riksbank, Sweden’s central bank, endorsed the government’s stabilization plan, describing the plan as “essentially well balanced and gives the Government a broad authorisation to take the measures that are necessary to safeguard the stability of the financial system.” The proposal includes the following key elements:
- Medium-term credit guarantee program – The Swedish government will, for a fee, guarantee up to SEK 1,500 billion (approximately $200 billion) of medium-term debt issued by banks and mortgage companies. The guarantee scheme will be administered by the Swedish National Debt Office and will be limited to the refinancing of maturing debt, including unsecured bonds, covered bonds, certificates of deposit and other non-subordinated debt, with maturities between 90 days and five years. Instruments guaranteed under this scheme may be issued until April 30, 2009, though that period may be extended up to December 31, 2009. In order to qualify for guarantees, banking and mortgage institutions must be based and operating in Sweden, and must hold at least 6% Tier 1 capital and at least 9% combined Tier 1 and Tier 2 capital. Additionally, the guarantee fee to be paid by public institutions will be differentiated by risk based on the institution’s public rating, while institutions lacking a public rating will pay a standardized fee.
- A stabilization fund – The Swedish government will contribute SEK 15 billion (approximately $2 billion) to a new stabilization fund that will “manage potential solvency problems in any Swedish financial institutions.” All credit institutions will be charged stabilization fees “once market conditions stabilize” and the fees “will be risk-differentiated and will be adjusted based on the level of incoming guarantee fees.”
- Capital injections – Although the government’s plan does not earmark specific funds for capital injections, the government announced that future injections of capital into Swedish credit institutions are expected to be in the form of “preference shares with high voting rights” for the government, although other forms of capital will also be considered. However, capital injections will be available only where “the State deems that the institution in question, given the prevailing situation at the time, is important for the financial system as a whole.”
- Compulsory share redemption – The government would be given the right, in certain circumstances, to buy out other shareholders in systemically important institutions at market price.”
- Restrictions on executive compensation – Institutions receiving government support, through debt guarantees or the stabilization fund, will be required to “enter into agreements with the State concerning limits on the compensation of key executives.”
The legislation must first be approved by the European Commission and the Riksdag.