SvD published information today about FI's supervision of Nordea and the banks' internal models. FI therefore sees a need to describe and make certain clarifications about its supervision and how the capital assessment for Nordea has been handled.
There are well established and adopted procedures for how FI assesses banks' risks and capital needs and carries out its investigations. These procedures aim to ensure that the basis on which FI makes its decisions is of good quality, broadly supported within the authority and legally sound. A central part of these procedures is to give the banks an opportunity to respond to FI's assessments, which is in full compliance with the regulations set out in the Administration Act.
5 February: FI receives information from Nordea in preparation for FI's annual assessment of Nordea's risk and total capital need. Analysis of all risks and models begins.
29 February: FI publishes a memorandum, FI's supervision of banks' calculations of risk weights for exposures to corporates, which contains a proposal to tighten the practices regarding the banks' estimations of the long-term probability of default. Such a change would require that at least every fifth year must be considered a downturn year. Following a consultation period, the memorandum is adopted on 24 May.
16 March: The memorandum that has been referred to by, among other sources, Svenska Dagbladet (hereafter called "the memorandum") regarding Nordea's estimation of probabilities of default in its corporate lending portfolio is shared with some of the management team within the Bank Section.
23 March: Even though a potential lack of capital is judged to be significantly lower than what was stated in the memorandum, the Head of the Internal Models Division, following a discussion with the Bank management team, decides to open an investigation. In order to gain some time, it is decided that this investigation will be conducted together with the follow up of the measures that Nordea and other banks are expected to take as a result of FI's memorandum regarding risk weights for exposures to corporates.
4 April: A notification letter announcing that an investigation has been opened is sent to Nordea with requests for information and meetings with relevant functions at the bank. The investigation focuses on the bank's estimates of probabilities of default in its internal model for exposures to corporates, i.e. the focus of the analysis that is now being mentioned in the media. The Internal Models Division also holds a meeting with the Director General, during which the memorandum about Nordea is discussed. The Director General discusses the matter with the Executive Director of the Bank Section, and it is noted that this is an important matter that must be further investigated.
10 May: FI holds the first meeting with the bank as part of the investigation, where it becomes apparent that there are deficiencies in parts of the data that Nordea submitted and that served as a basis for the analysis in the memorandum.
18 May: FI sends out a new, more comprehensive, request for additional information that includes a breakdown by geographical region, among other things.
Today: FI is continuing to analyse the data. It plans to send a verification letter to the bank at the end of June outlining its observations and preliminary assessments regarding any deficiencies in the models.
Next step: The bank may respond to FI's verification letter, after which FI will make its final assessment regarding whether or not there any deficiencies in the models and how these deficiencies should be rectified. This could potentially mean that the bank may need to make changes to its models and hold extra capital during the time it takes to implement these changes.
FI will announce its assessment of the total capital need for all of the major banks in September. At this time, any additional capital requirements for Nordea that were identified during this investigation will become official.