Sweden's $202 billion guarantee fails to help markets

The Swedish finance minister, Anders Borg, promised SKr1500 billion ($202 billion) in loan guarantees to Swedish banks yesterday, but the country's markets remained sluggish today.

Borg said the Swedish government would guarantee up to SKr1500 billion of banks' medium-term debt in exchange for a fee, to be set at "a level between the current market price and an estimated price under normal market conditions".

Banks will need at least 6% of tier one capital to qualify for the scheme, which will run until the end of April - but may be extended to the end of 2009. The scheme will cover bonds and other non-subordinated debt with a maturity of between 90 days and five years.

The ministry will also set up a "stabilisation fund" with SKr15 billion of government money, to be topped up by fees from all credit institutions once the market stabilises. The fund will be used to ward off insolvency at systemically important banks by buying voting preference shares or other instruments, in exchange for the banks agreeing to limit executive compensation and bonuses.

The Swedish National Debt Office, which already runs the Swedish deposit insurance scheme, will administer the guarantees and the stabilisation fund. If approved by the Swedish parliament, the support plan should come into effect next week, the ministry said.

The OMX Nordic 40 index of Scandinavian shares fell slightly today, down 0.25% to 717.99 - although Swedish financials rose 0.5% to 92.16.

Sweden joins the other advanced economies in announcing a generous package of guarantees and investment to shore up its banking industry - the US, Europe, the UK, Canada, Japan, Korea, Switzerland and Australia have all intervened to various extents.

See also: French banks to receive €10.5 billion in state loans
$130 billion aid for Korean banks
Swiss National Bank to take $60 billion in UBS assets
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