Strong banks supported by high savings rates

In keeping with the frugality and financial strength of Nordic governments, the region’s six leading banks, although small by global standards, are among the world’s best capitalized and most efficient. Table 4.2 provides evidence of this in terms of 2019 credit ratings (first column); Tier 1

Table 4.2 Credit and Capital Ratios of Major Nordic Banks Compared to Top US and European Union Banks (2019)

Six Largest Nordic Banks

Credit Rating

Tier 1 Ratio

Expense Ratio

Danske Bank Group




DNB Bank*




Svenska Handelsbanken*












Skandinaviska Enskilda Banken*




Largest US and EU Banks

Bank of America




BNP Paribas*








Deutsche Bank




HSBC Holdings




JPMorgan Chase




Wells Fargo




Sources: Moody’s plus 2019 bank annual reports.

*Banks rated by Global Finance Magazine as “the world’s safest” in 2019 are marked with an asterisk (http s://w w

Deutsche Bank 2019 annual report did not disclose the foregoing ratios due to a €19.7 billion operating loss.

capital ratios, which reflect their financial strength (second column) and their efficiency ratios, which reveal operating expense relative to total income (third column).

By these standards, five of the six leading Nordic banks had top-tier credit ratings (Aa3/Pl or better) during 2019. By comparison, only one European bank met this standard (BNP). Notably, none of the big US banks were able to attain this high standard. The reason for this divergence becomes clear when we compare their Tier 1 ratios of core bank capital to risk-weighted assets. By this metric, the Nordic average for 2019 (18.80%) was more than 40% stronger than their largest US and European peers (13.28%).

Another key indicator of the financial strength of Nordic banks can be found in their low expense ratios - a measure of their operating efficiency. In this case, low ratios are preferable to high ones because they enable banks to maintain their capital strength. By this metric, the average operating expense ratios of the six largest Nordic banks (50.38%) was significantly lower than their US and European megabank peers. Even if we exclude Deutsche Bank, which had an operating loss of €5.7 billion in 2019, the average expense ratios of the remaining six (62.51%) suggest their cultures are more extravagant and risky. A likely reason for this gap in expense ratios is the fact that Nordic branch managers control most lending, which ensures that credit is allocated to locally known customers. In addition, Nordic banks do not indulge their executives with large bonuses, which reduces their temptation to take aggressive risks.

As a result of their frugal, cost-conscious cultures, five of the six Nordic banks listed in Table 4.2 were included in Global Finance magazine’s 2019 list of the “World’s safest banks.” (Danske Bank, which was listed in the 2017 top 50, was demoted due to a self-reported 2018 money laundering case against its Estonian branch for which its CEO and board chair were fired.) In addition, three smaller Nordic banks were included on the 2019 top 50 list: Norway’s Kommunalbanken, Sweden’s Export Credit Bank and Finland’s OP Corporate Bank. By contrast, none of the biggest US banks made the list.’

Another important component of the region’s banking strength is the earlier mentioned Nordic Investment Bank (Chapter Two), which aims to serve the common good in support of the Nordic Council of Ministers’ democratic ideal of a “sharing economy.”10 With a rare AAA/Aaa credit rating, it works in partnership with regional commercial banks - both in helping to evaluate risks and by co-lending with them. By focusing on the quality of lending, rather than the quantity of deals generated, the NIB has remained a preferred credit risk relative to major US investment banks, such as Morgan Stanley (Al) and Goldman Sachs (A3). The same holds true in comparisons with the giant US and European commercial banks shown in Table 4.1 - all of which engage in investment banking. Due to the aggressive risk-taking cultures of these megabanks, all but one (HSBC) had to be rescued at public expense following the 2008 global financial crisis; and all were later fined for malfeasance and corruption."

We find further expressions of the Nordic region’s frugality in its high gross national savings rates. Norway led in this metric with a huge savings rate of 36%, followed by Sweden and Denmark (29%), Finland (24%) and Iceland (21%) - all of which had higher 2019 savings rates than the US (19%).12 In Nordic countries, the largest portion of such savings is held in government reserves that support citizens’ health, education and retirement security. Were the US to adopt similar accounting methods, its savings rate would be negative due to its massive unfunded liabilities.

In addition to the substantial reserves set aside by Nordic governments, regional companies generally maintain strong reserves on their balance sheets - a quality that enables them to serve the public while doing cutting-edge research on renewable energy, bio-innovation and circular economy technologies. Because people working within such cultures feel secure and find meaning in what they do, they become more engaged and productive. Although this is not the stuff of economic texts, such operating leverage is real and largely explains why Nordic economies and companies have become global leaders in sustainable innovation and financial integrity.

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