ECB Flags Risks at Swedish Banks

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The European Central Bank has identified significant deficiencies in internal risk models used by Sweden’s largest lenders, SEB and Swedbank, for their operations in the Baltic states. According to people familiar with the matter, the shortcomings relate to models that underpin capital requirements and assess the likelihood of losses in Estonia, Latvia, and Lithuania.

Banks move to revise frameworks

Both lenders have committed to implementing short- and longer-term measures to address the issues and have previously acknowledged ongoing work to update their broader risk-model frameworks. Regulatory reviews of this kind often result in higher capital requirements if models are deemed to underestimate risks, increasing pressure on banks’ balance sheets.

ECB oversight in the Baltics

While the ECB is not the primary supervisor of Swedish banks, it directly oversees their operations in the Baltic countries, which are part of the euro area. Within this remit, the regulator has already taken enforcement action, fining SEB Baltics €1.24 million earlier this year for breaches related to internal models between 2022 and 2024.

Coordination with Swedish authorities

The ECB’s concerns have been communicated to Sweden’s Financial Supervisory Authority, which said it continuously monitors how banks comply with regulatory requirements, including those governing internal risk models. This coordination underscores the cross-border nature of banking supervision in the European Union.

Capital impact and long approvals

Swedbank has said it is applying for new internal ratings-based models in line with European Banking Authority guidelines, while SEB has already set aside additional capital linked to model revisions launched in 2023. SEB expects its risk exposure amount to rise by about 5% until ECB approval for its Baltic subsidiaries’ models is secured — a process the bank has warned could take several years.

As reported by International Investment experts, the ECB’s findings signal a tougher regulatory stance toward internal risk modeling at large European banks. For lenders with cross-border operations, especially in the euro area, this translates into prolonged supervisory scrutiny, higher capital buffers, and a growing emphasis on conservative risk assessment.