Precautionary support

The foundation of the bank resolution framework is that all forms of state aid to banks and institutions shall be limited.

Any provision of precautionary support requires approval from the Swedish Government and the European Commission. Support measures will be financed through the stability fund.

Three allowed forms of support

The Debt Office may provide precautionary government support in three different forms: 

• by issuing a guarantee for a credit institution’s newly issued wholesale funding
• by issuing a guarantee to the Riksbank for its lending to a credit institution
• by providing capital support to a credit institution through the addition of share capital or the purchase of other own funds instruments

The purpose of the guarantees is to facilitate access to liquidity for a credit institution, while capital support is intended to strengthen the institution’s own funds.

A number of conditions must be met before precautionary government support can be provided, including that the support is:

• temporary and proportionate in relation to the problems of the vulnerable bank
• based on commercial terms and conditions, which prevents distortion of competition in respect of other institutions
• covered by terms and conditions that allow for the state to be compensated for the risks that the support may entail for taxpayers
• compliant with the EU regulations on state aid and approved by the European Commission

In addition to these conditions, the Debt Office must as a general rule also allow an independent party, such as an auditing firm, to conduct a valuation to determine an institution’s eligibility for precautionary government support. If the valuation shows any losses in the institution, these must first be borne by the institution’s shareholders and lenders. The provision of support is also subject to the approval of the European Commission in accordance with the EU regulations on state aid.

Only for exceptional cases

The conditions for granting government support are now far more restrictive than they were during the global financial crisis of 2008–2009. This is because the Precautionary Support Act was amended and the Resolution Act was introduced when the EU Bank Recovery and Resolution Directive was transposed into Swedish law. The directive sets out measures that severely limit the circumstances in which different types of government support may be applied. In addition, the guidelines on how the EU regulations on state aid will be applied are now reinforced by further restrictions.