The Nordic countries have a well-developed cooperation in the financial markets area, both at the ministerial and supervisory level. However, we do see that there is room for Nordic authorities to strengthen the cooperation on inter alia the new capital and liquidity requirements, with particular emphasis on more host country regulation. It is important that each individual country has the necessary tools to ensure financial stability in that country. The report provides a good basis for strengthening the Nordic cooperation further when we now are in the process of implementing the new capital- and liquidity requirements, the so called CRD IV framework, says minister of finance Sigbjørn Johnsen.
The Nordic ministers of finance are positive to cooperation between the Nordic countries. In line with the recommendations from the working group, the ministers agreed to invite the Nordic financial supervisory authorities to– within the framework of national and EU/EEA legislation – look into the possibility of:
- a common understanding of the forthcoming EU/EEA rules on liquidity requirements,
- establishing a system of mutual recognition of capital requirements in the Nordic countries (so-called reciprocity and host country regulation), and
- a cooperation on common criteria and similar practises when supervisory authorities approve the models banks use to calculate capital requirements (both the standardised and the IRB approach).
In February 2012, the Nordic ministers of finance appointed a working group to assess various aspects of the forthcoming Basel III/CRD IV framework and the impending implementation into national legislation, including the possibilities for cooperation between the Nordic countries on the implementation. The working group's report was submitted to the Nordic ministers of finance on 13 June 2012.
The report consists of two parts. The first part describes the impending implementation of the CRD IV framework into national legislation and the various challenges in the individual Nordic countries. The second part goes into detail on the possibilities for Nordic cooperation on the implementation of different parts of the new legislation.
The working group notes that the Nordic financial markets are highly integrated and that it is both possible and desirable to establish a Nordic cooperation on the new CRD IV capital and liquidity requirements. The group notes in particular the possibility of cooperation on utilising national flexibilities in the forthcoming EU/EEA framework, and that there should be greater emphasis on so-called host country regulation. Host regulation means that the rules laid down in a country, will apply for all banking activities in that country, including that of branches and banks operating other cross-border activities.
The working group also points out that residential mortgage loan risk weights are low in large Nordic banks using internal models (IRB models) to calculate capital requirements. Financial stability considerations may call for higher risk weights and thus higher capital requirements for residential mortgage loans. This can be achieved through stricter requirements for banks' IRB models. The group also points out that it is possible, and also important, to cooperate on common criteria and uniform application when supervisory authorities approve the models banks use to calculate capital requirements (both the standardised and the IRB approach). This may improve market transparency and ease comparison of different banks.
Report from the Nordic working group consisting of representatives from the Nordic ministries responsible for financial markets regulation in the Nordic countries.