Sweden - Banking and securities

The Central Bank of Sweden (Sveriges Riksbank), founded in 1656, is the oldest bank in the world. It is the bank of issue and regulates domestic banking operations. The European Central Bank is responsible for determining monetary policy and setting interest rates. The largest commercial bank is the Skandinaviska Enskilda Banken. In the early 1990s, Swedish banks suffered severe losses; the government was forced to intervene and support two of the five largest commercial banks, Nordbanken and Gota Bank, by taking them over and eventually merging them, and the savings bank Forsta Sparbanken. By the end of 1996, Swedish banks showed improved results, with reduced credit losses and a stricter control of costs since the banking crises set in at the beginning of the 1990s. The smaller banks serve provincial interests. Deposit accounts at various lengths of call are used for short-term credit by industry and trade. The deregulation of financial markets has paved the way for foreign banks to open offices in Sweden. In 1997, Sweden's banking sector saw a series of mergers and acquisitions as Svenska Handelsbanken, the nation's largest bank, acquired the country's largest mortgage lender, Stadshypotek. Swedbank and Föreningsbanken merged, creating the second largest bank. Forenings Sparbanken is now trying to merge with Skandinaviska Enskilda Banken (SEB) to compete with Nordea for dominance of the Nordic banking market. However, this deal must still garner the approval of the EU. Den Donske Bank, based in Denmark, made the first incursion by a foreign bank into the Swedish retail sector when it purchased Ostgöta Enskilda Bank. By December 2000, 41 commercial banks remained in Sweden.

Mortgage banks of various types meet the needs of property owners, home builders, farmers, and shipbuilders. Credit also is extended by some 500 local rural credit societies and by about an equal number of agricultural cooperatives. There are four semi-governmental credit concerns, organized as business companies and created in cooperation with private commercial banks to facilitate long-term lending to agriculture, industry, small industry, and exports. Although the Riksbank's note issue is not tied to its gold reserves, there is an adjustable legal limit.

The International Monetary Fund reports that in 2001, M2— an aggregate equal to currency and demand deposits plus savings deposits, small time deposits, and money market mutual funds— was $88.1 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 4.08%. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 2%.

The Riksbank lends money to the commercial banks and other credit associations against securities. Traditionally, the Swedish people have preferred to save by placing money in these banks rather than by direct investment, although this seemed likely to change if the Swedish pension reforms of 1997 were fully enacted, allowing workers to decide how to invest a portion of their retirement reserves. In 1992, 118 Swedish companies and 10 foreign companies were listed on the Stockholm Stock Exchange (Stockholms Fondbörs), which was computerized that year. In 1997, the Stockholm Stock Exchange entered into a joint equity trading union with the Danish bourse, creating the first transnational link of its kind in Europe. The joint equities market became Europe's sixth largest.

Profits from the sale of securities are taxable provided they have been owned for less than five years. The capital gain is wholly taxable for securities held less than two years, but only 40% of the gain is taxable if the shares have been held more than two years. For machinery and equipment a minimum write-off period of three years is prescribed. The 1985 deregulation of the credit market included the removal of ceilings on lending banks, finance houses, and housing credit institutions and had the effect of diminishing part of Sweden's "gray market": direct contact between companies and private individuals with money for loans. Stockbroking is authorized by the Bank Inspection Board.