By Jason Douglas
LONDON--Banks aren't properly recognizing the risk of losses on
their mortgage books, the head of Sweden's central bank and
chairman of the Basel Committee on banking supervision said
Tuesday.
Riksbank Governor Stefan Ingves said, "risk weights" used by
banks to calculate the amount of capital they need to hold against
losses on mortgages are too low.
"In my view, risk weights, and particularly risk weights for
mortgages, need to go up," Mr. Ingves said in a lecture to the
Official Monetary and Financial Institutions Forum in London.
Mr. Ingves's remarks imply banks aren't holding enough capital
to cover potential losses on bad home loans, and may signal a
tougher stance from regulators on how banks calculate risk in their
portfolios and subsequently their capital needs.
He said a big chunk of most nations' private sector debts are
home loans yet the risk associated with potential losses is
minimal.
"In my view that's not sustainable," he said.
The bulk of Mr. Ingves's speech focused on lessons for policy
makers from Sweden's banking crisis in the 1990s. He said it is
important banks' bad loans are recognized and losses imposed. He
also stressed the importance of international cooperation in
tackling financial crises.
Write to Jason Douglas at jason.douglas@dowjones.com