Euro Zone may get another giant bank as Finns build Nordea case

[HELSINKI] The Nordic region's only global systemically important financial institution would face less regulatory risk if it moved to the euro zone than it does now in Sweden, according to the resolution authority in Finland.

Nordea Bank AB, which is threatening to shift its headquarters from Stockholm unless Sweden creates a more hospitable business environment, is considering Finland and Denmark as alternatives. With Chief Executive Officer Casper von Koskull set to announce a decision before the summer, Finland has put together a working group to entice the bank, Finance Minister Petteri Orpo said in April.

If Nordea moves to Finland (the Nordic region's only euro member), it would be inside the banking union and its single supervisory mechanism. Tuija Taos, Director General of the Finnish Financial Stability Authority, says that would create a more predictable, stable regulatory environment, which von Koskull has said Sweden doesn't provide.

Moving to Finland would give Nordea "a clear picture of what rules it needs to comply with" inside the banking union, Ms Taos said in an interview. Outside the union, there's "more risk that policies will be changed," she said.

Nordea's threat to move its headquarters follows a plan by Sweden's Social Democratic-led government to raise bank contributions to the national resolution reserve. The Swedish Bankers' Association has calculated the proposal means that, by 2032, the country's crisis pool will be 10 times the size it would have been if Sweden had stuck with EU minimum rules.

Euro zone banks are only required to contribute to the bloc's resolution fund until it reaches a target of 1 percent of guaranteed deposits. In Sweden, fees are collected annually, with no end point under the government's proposal. If Nordea moves to Finland, it would pay smaller fees to the banking union's resolution fund than are planned in Sweden, said Taos.  Nordea's CEO has said the likelihood the bank will move is "very high" unless Sweden's government backtracks on its plans. But Sweden argues it needs to create additional safeguards to protect taxpayers from a financial system that's about four times the size of the economy.

Denmark has also said Nordea would be welcome there. If the bank were to move to Copenhagen, the national regulator would be responsible for financial assets of more than five times GDP, a scenario that has prompted some lawmakers to suggest Denmark should consider joining Europe's banking union.

"It's natural that Sweden, which is not in the banking union, has taken a strict stance and is accumulating a large fund," Ms Taos said. But "Nordea's case is a clear example" that shows how a bank "suffers from having different rules in different countries in the Nordic region." But having Nordea domiciled in Finland also comes with risks for the country. Its total assets of more than US$700 billion dwarf Finland's roughly US$230 billion economy. If Nordea failed, or had to be restructured, Finland would have limited access to euro-area support, especially before the end of 2023, when the bloc's resolution fund is filled. Even then, the fund is expected to hold only about US$60 billion. If more were needed, Finland's taxpayers could find themselves on the hook.

BLOOMBERG