We refer to Finanstilsynet's (Financial Supervisory Authority of Norway) letter of 29 March 2016 in which Norges Bank is asked to comment on Nordea Bank Norge ASA's application for conversion to a branch of Nordea Bank AB.

Nordea Bank Norge is currently a wholly owned subsidiary bank of the Swedish Nordea Group, with group executive management in Sweden. In Norges Bank's view, conversion of Nordea Bank Norge from a subsidiary bank to a branch will not entail material changes in the way the bank normally functions in the Norwegian financial market and the Norwegian economy. Nordea Bank Norge has been designated by the Ministry of Finance as one of three systemically important financial institutions in Norway.

After a conversion to a branch, Swedish authorities will, in principle, have sole responsibility for supervision, regulation and crisis resolution of Nordea. Nordea will be covered by the Swedish deposit guarantee scheme and may also, if it so chooses, become a member of the Norwegian scheme under the topping-up rules. Nevertheless, owing to Norwegian authorities' responsibility for financial stability and consumer protection in Norway, Norwegian authorities must be provided with complete information regarding Nordea's operations in Norway after conversion to a branch. In particular, Finanstilsynet should be given a stronger role in the cross-border college of supervisors than what is set out as a minimum requirement in the EU Capital Requirements Directive (CRD IV) for a significant branch.

A branch in Norway of a foreign bank has access to Norges Bank's liquidity facilities and participates in Norges Bank's settlement system on the same terms as a Norwegian bank. Therefore, after the conversion of Nordea Bank Norge to a branch, it will be necessary for Norges Bank to be provided with the same information regarding the solvency and liquidity of the Swedish Nordea Bank AB that Norges Bank is currently provided with regarding Nordea Bank Norge.

Norges Bank has noted that Sveriges Riksbank is of the opinion that after a conversion from subsidiaries to branches in Denmark, Finland and Norway, Nordea will have to meet a liquidity coverage ratio (LCR) requirement in each significant currency, including the Norwegian krone. Norges Bank supports such a requirement, which is in line with the Bank's recommendation to introduce an LCR for Norwegian banks (see the 2014 Financial Stability Report). Norges Bank also endorses the Riksbank's view that Nordea must meet the requirement for a 100 percent Net Stable Funding Ratio (NSFR), which pertains to the bank's long-term funding. Furthermore, the Riksbank has proposed a leverage ratio for Nordea of at least 5 percent. Norges Bank agrees that the minimum requirement for Nordea's leverage ratio should at least be this high. The Riksbank has also expressed the view that Nordea must be subject to a high total loss absorbing capacity (TLAC) requirement (cf the EU Bank Recovery and Resolution Directive (BRRD) and the principles in the Financial Stability Board's recommendations). Norges Bank is in agreement with the Riksbank on this point.

Nordea Bank AB with a Norwegian branch will be a Swedish bank, and Swedish authorities will also have the responsibility for the bank in any crisis. The existing Memorandum of Understanding between the ministries, supervisory authorities and central banks in the Nordic-Baltic countries has established a common understanding regarding the information to be exchanged between the authorities if problems arise at Nordea.[1] In the event of serious liquidity problems at Nordea that necessitate emergency liquidity provision, this will have to be the Riksbank's responsibility. Nordea Bank AB cannot expect emergency liquidity for individual banks from Norges Bank in the form of loan on special terms ("S-loan").

Work is in progress on new Memoranda of Understanding between the central banks, between the supervisory authorities and between the relevant ministries in the Nordic and Baltic countries regarding challenges arising from large cross-border bank branches. Norges Bank expects that the issues addressed in this consultation letter will be thoroughly discussed in the preparation of these documents.

Yours sincerely,

Øystein Olsen
Governor

Sindre Weme
Acting Executive Director

Copy to: Ministry of Finance

Footnotes

[1] Cooperation agreement on cross-border financial stability, crisis management and resolution between relevant Ministries, Central Banks and Financial Supervisory Authorities of Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden, 17 August 2010.