Several big banks from Sweden have their reputations for capital strength under threat. Regulators believe that they are more prone to risky loans than previously believed.
Regulators told Danske Bank to redo its capital needs processes and to prioritize and boost its buffers against bad debts. The events in the Danish financial sector show that regulators are closely monitoring the implementation of capital rules of banks due to the European financial crisis. This is too see if the banks are underestimating risks.
Sweden's banks are currently being pushed to save more capital assets for probable risk-related losses on home loans.
"Risk weights" are assessments of banks on how probable a loan turns sour.
"Are historical risk weights reasonable to predict future losses? Probably not. History is not a perfect picture of the future, especially when you are talking about tail risks," said Sean Cotton, Standard and Poor's associate director for Scottish operations.
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