Capital base and capital adequacy
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Swedbank shall maintain an effective capital base that by its size and structure ensures a high return on shareholders’ equity, and at the same time ensures that Swedbank will meet the minimum legal capital requirement and maintain access to cost efficient funding in the capital markets, even under adverse market conditions.
Swedbanks capitalization, i.e. the capital base in relation to risk exposure expressed as risk-weighted assets, shall be maintained at an appropriate level to operate and develop the business.
The capital adequacy rules express the legal requirement of lawmakers as to how much capital—the capital base—a credit institution such as a bank must have in relation to the risk the institution faces.
The primary component of the capital base is the institution’s equity capital, but subordinated debt can also be included. Under the new capital adequacy rules that came into effect in 2007, the capital requirement shall be linked to Swedbank’s current and future risk profile, internal risk measurement and assessment of the risk capital needed. In addition to capital requirements for credit risk, market risk and operational risk (Pillar 1), all other risks, e.g. concentration risks, earnings volatility risk and strategic risk must be taken into account when assessing the total capital need (Pillar 2). Since the rules impose significant changes compared with the previous rules, they will be gradually implemented over three years and completed at the end of 2009. One implication of this is that the size of the capital base during the transition period to a large extent will be based on requirements calculated according to the former capital adequacy rules.
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