STOCKHOLM (Reuters) - Sweden's financial watchdog rejected on Friday the central bank's call for further tightening of capital requirements for lenders, highlighting divisions between policymakers over how to deal with high household debt levels in the country.
Authorities have been at odds over the extent of the threat posed by Swedish household debt, which totals around 170 percent of disposable income - one of the highest rates in Europe.
This week the Financial Supervisory Authority (FSA) itself proposed tighter mortgage repayment rules to bring down the debt burden. But the Riksbank said even tougher measures were needed, including a leverage ratio of 5 percent of banks' total assets.
"To set them at these levels ... could have quite dramatic consequences for how banks view risk and price risk in the future," FSA Director General Martin Andersson told reporters.
Leverage ratios do not take into account how risky particular credits are, unlike current capital requirements which are risk-weighted.
Andersson said leverage ratios should be used as a backstop to other capital requirements to ensure capital cannot fall below a certain level. Setting a leverage ratio too high would mean banks' would have no incentive to have a low risk profile in their portfolios.
"Looking at credit, regardless of whether you look at credit to companies, countries or what you look at, I think everyone agrees that there are large differences in creditworthiness," Andersson told reporters on the sidelines of a conference.
"It would be a shame to remove those differences from the banks' business models."
International regulators have agreed that a leverage ratio will be introduced in 2018 but have yet to agree on a level.
Sweden's four major banks - Nordea (ST:NDA), Swedbank (ST:SWEDa), SEB (ST:SEBa) and Handelsbanken (ST:SHBa) - are among the best capitalised and most profitable lenders in Europe.
(Reporting by Johan Ahlander; Editing by Simon Johnson and Hugh Lawson)