Sweden got to be an economic powerhouse with its banks financing “risky” entrepreneurs, not by these financing “safer” houses.

Sir, Patrick Jenkins reports: “Nordea has a core equity capital ratio of close to 20 per cent, double that of some European rivals. It can expect lesser capital demands from the ECB” “Nordic noir: the outlook darkens for Sweden’s banks” May 1.

Let us suppose that Nordea has only Basel II’s 35% risk weighted residential mortgages on its books. Then, a 20 percent capital ratio, would translate as having Nordea 7% in equity against all its assets meaning it is leveraged 14.2 times to 1.

So when we then read that in Sweden “house prices have declined 10 per cent since last summer, although in prime Stockholm the slump has been closer to 20 per cent” of course that should be enough to besides giving “Jitters about the sustainability of property prices” causing jitters about its banking sector.

I have a close relation to Sweden in that not only was my mother Swedish but I also spend my most formative years, high school and university there. So it saddens me to see what is happening. Sweden that got to be so strong by its banks financing “risky” entrepreneurs is now getting weaker by its banks mostly financing “safer” assets, like mortgages.

“Sweden’s Financial Supervisory Authority, late last year, proposed Sweden’s Financial rules [that] would mean those taking out new home loans of more than 4.5 times their salary would have to pay off an extra 1 per cent of their mortgage annually.” Are we to be impressed with that?

Stefan Ingves the Governor of Sveriges Riksbank has since 2011 been the Chairman of the Basel Committee for Banking Supervision. Why has he not proposed to stop distorting the banks allocation of credit, by requiring these to hold the same capital when extracting value and placing a reverse mortgage on the “safer” present economy, than when financing the riskier future, that the young Swedes need and deserve is financed?

In Swedish churches there was (is) a psalm (#288) that prays for: “God make us daring”. It would seem Mr Ingves never heard less sang it.