The Norwegian Ministry of Finance's response to the wave of emigration among Norwegian niche banks: The systemic risk buffer should apply to all Norwegian loans

Two Norwegian niche banks have recently been acquired by Swedish banks (Bank Norwegian, Bank2), two have moved out of the country (Lea Bank, Morrow Bank), and a further two have announced relocation plans (Instabank, Aprila Bank). As a result of a high systemic risk buffer in Norway (4.5%) and high Pillar 2 requirements, many Norwegian niche banks have significantly more burdensome capital requirements than, for example, Swedish banks that operate in Norway through a branch. Sweden does not currently have a general systemic risk buffer requirement. 

In 2023, the ESRB recommended that supervisory authorities in the EEA should recognise the Norwegian systemic risk buffer requirement for banks that have risk-weighted exposures in Norway of more than NOK 5 billion. This was done, among others, by the Swedish Financial Supervisory Authority. 

However, many niche banks will not exceed this threshold. The Ministry therefore signals in the Financial Markets Report that it will request relevant supervisory authorities to fully recognise the Norwegian systemic risk buffer, without the current threshold. Later this spring, Norges Bank will provide advice on the level and structure of the Norwegian systemic risk buffer requirement, and on this basis the Ministry will contact the relevant supervisory authorities to explain the unfortunate aspects of the current materiality threshold for recognition of the Norwegian buffer requirement. 

With regard to the discretionary Pillar 2 requirements, which are also considerably higher in Norway than in, for example, Sweden. The Ministry is also concerned with achieving harmonisation. However, it does not seem appropriate to reduce the Norwegian level significantly. On the contrary, the Ministry points out that it is important to avoid a "race to the bottom" by allowing countries with stricter requirements to adapt to countries with more lenient requirements. Furthermore, it is stated that Finanstilsynet must set requirements that reflect the risk in each individual bank, and the Ministry emphasises the importance of maintaining the solvency of Norwegian banks. 

In other words, competition on equal terms must take place on the Norwegian authorities' terms. Norwegian authorities' willingness to recognise the perspectives of other supervisory authorities and the international movement towards reduced capital requirements for banks appear so far to be limited.