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Swedish watchdog to look at banks' own-book trading

Published 09/06/2010, 12:09 PM
Updated 09/06/2010, 12:12 PM

By Simon Johnson

STOCKHOLM, Sept 6 (Reuters) - Sweden's financial watchdog said on Monday it was launching a study into how banks trade with their own money after the forced closure of HQ Bank.

The Swedish Financial Supervisory Authority (FSA) withdrew HQ Bank's license late last month and put it into liquidation due to failures of reporting at its trading unit. Privately owned Carnegie plans to buy the bank.

FSA Director General Martin Andersson said the body was not worried that Sweden's banks had problems in their trading operations.

"It is natural, in light of the situation we have found ourselves with HQ, that we take the step of going out to the other banks who trade on their own book to see how their risk control looks," he told Reuters.

The comments followed a Swedish media report that the regulator planned such an inquiry.

"The most important thing from our perspective is that we have institutions that can control the risks they take, that the leadership understands the risks they are taking and that they have capital in place beforehand."

Andersson declined to say which financial institutions would be covered in the study, which he said would take a couple of months to complete.

Cancelling HQ's banking licence, the FSA said the bank had not controlled its trading operation and had taken "such large risks that the company endangered its own survival".

Sweden's Economic Crime Authority has launched a preliminary investigation into practices at HQ Bank.

The probe by the FSA reflects a growing concern among authorities after the global financial crisis that excessive risk-taking by banks can create big problems for the global economy and for individual countries' markets.

Sweden's financial system came through the global downturn in fair shape, though several banks were forced to take large provisions against souring loans in the Baltic states.

Unlike in many European countries, the government did not have to step in to prop up any major financial group.

However the FSA in 2008 fined brokerage Carnegie after it overstated the value of its trading portfolio and took away its license. The Debt Office took over the firm and Carnegie was sold in 2009 to private equity groups. (Editing by David Holmes)

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