Swedish Bank Fee Starting to Look Good to US Treasury

Snowy Sweden had its own banking crisis in the 1990s, but due to extensive bailouts emerged relatively unscathed… well, aside from rampant nationalizations and socialistic tendencies. Sound familiar?

Now, another hot idea from that same ice kingdom is catching on in the US. In 2009, in order to “protect” lenders, Sweden put a stability fee, charged to banks, into law. The idea is sock away a fund capable of financing future bank bailouts should the need arise.

It’s not entirely clear why lenders need so much protection. They are the ones choosing how and to whom to lend. Maybe it just sounds more considerate than using taxpayer money?

From The New York Times, here are the details on how the program works in Sweden:

“But Stockholm went further, introducing a permanent stability fee on banks and other credit institutions that some now see as a model for other countries.

“The levies are allocated to a stability fund, managed by the National Debt Office. The government plans to keep the tax until it hits a total of 2.5 percent of gross domestic product in 15 years. The Swedes estimate that to be the amount that a full-blown banking crisis would normally cost the economy.

“The fee will be due annually, starting at 0.018 percent of each institution’s liabilities, excluding equity capital and some junior debt securities, based on audited balance sheets.

“The first payments have not been made because the 2009 reports of the banks have not been completed. But the government has already started the fund with 15 billion kronor ($2.1 billion)…

“…The fund now stands at about 30 billion kronor, or about 1 percent of Swedish gross domestic product. The [annual] bank levy will rise [from roughly 0.018 percent of each institution’s liabilities] to 0.036 percent of liabilities in 2011, when the government is planning to introduce a weighted charge as well. Companies with riskier balance sheets would pay more.”

The US version of the plan isn’t exactly the same, as it’s geared toward recovering bailout funds from banks with consolidated assets of greater than $50 billion. Either way, it’s hard to see how any fee of this type could be put into place without most of the costs ultimately being passed on to borrowers.

Regardless, Washington is starting to think it’s a good idea and Swedish finance minister Anders Borg is also pushing the European Union to give it a try. See The New York Times for more coverage in its article on the Swedish bank fee that is setting an example for the US.