Conference Probes Links Between Nordic-Baltic Banks

Euro area banking union to have impact on Nordic-Baltic banks

Nordic-Baltic banking sector is large and highly integrated

Financial stability supported by joint supervisory vigilance and well-capitalized banks

The eight Nordic-Baltic countries—Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway, and Sweden—share a regionally integrated financial market, and often similar philosophies on economic, monetary, and financial policies. The region’s banks are well capitalized and highly rated, and, for the most part, have weathered the recent crisis better than most.

“The long-standing Nordic-Baltic collaboration on cross-border banking supervision has been very important not only for the region’s financial stability, but also for cementing market confidence,” said IMF Deputy Managing Director Nemat Shafik, who spoke at the conference.

Nordic-Baltic Financial Sector

The financial sectors of the eight Nordic-Baltic countries are concentrated around a small group of large banks.

• The recent Nordic Regional Report highlighted how the assets of the six largest banks (Danske Bank, DnB, Handelsbanken, Nordea, SEB, and Swedbank) comprise roughly 90 percent of the total assets of all of the region’s publicly-listed banks with most of their business concentrated within the Nordic-Baltic region. Mergers following the 1990s banking crisis, and a subsequent period of dynamic growth, have made these banks bigger and more systemically important. For example, banking assets in Denmark and Sweden amount to approximately 400 percent of GDP in each country.

• Banking systems in the Baltic countries have a significant foreign presence, mainly by large Nordic banks—in Estonia and Lithuania, for example, the banking systems are more than 90 percent foreign owned. Baltic banks are also heavily dependent on funding from their Nordic parent banks, albeit to a much lesser extent than before the crisis. These strong ties make the Nordic-Baltic countries subject to spillovers from within the region, as well as to global shocks due to their high degree of trade and financial openness.

Although collaboration and cooperation across the region have been essential for financial stability, especially in the context of the financial crisis, the crisis also showed that the region needs a stronger institutional framework as national supervisory mandates are not equipped to handle cross-border challenges. Looking forward, the challenges of collaboration may increase...