Sweden’s central bank on Wednesday geared up for a possible Latvian devaluation by borrowing €3bn from the European Central Bank under an existing €10bn swap agreement.
The move came as Sweden’s banking regulator said that the country’s banks – which dominate the Baltic banking sector – had a strong enough capital base to withstand a financial crisis there but that nevertheless they might have to raise more capital to calm the markets.
The Swedish Financial Supervisory Authority said on Wednesday that, according to its stress tests, the four big Swedish banks did not need to raise more capital at the moment and could absorb SKr150bn (€14bn) in losses over three years in the Baltic states.
“However, in extreme scenarios the market will most likely require a higher level of capital, which can place pressure on financing possibilities for banks that are most affected,” it warned.
One always needs to be wary when bankers protest how well capitalized they are!