Swedish banks must do more to prepare for a deterioration in Europe\'s debt crisis that could freeze interbank markets and cut off funding, said Lars Frisell, chief economist at the country\'s financial regulator. \"It won\'t take much for the interbank market to collapse,\" Frisell, who is also a member of the Basel Committee for Banking Supervision, said on Wednesday in in Stockholm. \"It\'s not that serious at the moment but it feels like it could very easily become that way and that everything will freeze.\" Swedish policymakers have been pressing for the nation\'s lenders to seek more permanent, longer-term funding after the financial crisis in 2008. Following the collapse of Lehman Brothers Holdings Sweden\'s central bank provided liquidity peaking at $30 billion (Dh110 billion) because the country\'s banks weren\'t able to borrow in the US currency to repay short-term loans. Reluctance Article continues below While Swedish banks\' liquidity situation has improved since 2008, they still need to \"do more\" to raise the maturity of their financing, primarily the dollar funding, Frisell said. The banks have also said that their funding has become shorter in maturity because of reluctance from US investors to lend long-term, he said. The three-month Stockholm interbank lending rate reached 2.59 per cent on Wednesday, the highest since December 2008. The rate rose to more than five per cent in 2008 as the market froze following the Lehman collapse. European bank stocks, including Swedish lenders such as Nordea Bank AB, the largest in the Nordic region, have tumbled this month on concern over potential losses from the sovereign debt crisis. Sweden\'s biggest lenders, which also include SEB AB, Svenska Handelsbanken AB and Swedbank AB, passed European Union stress test released earlier this year. Nordea fell 3.5 per cent at 11.13am local time yesterday, while SEB tumbled five per cent, Swedbank retreated 4.3 per cent and Handelsbanken, the country\'s second-largest lender, slipped 3.3 per cent, all underperforming the Bloomberg Europe Banks and Financial Services Index, which was down three per cent. The leaders of France and Germany on Tuesday also renewed calls for a tax on financial transactions. German Chancellor Angela Merkel and French President Nicolas Sarkozy also rejected selling euro bonds and expanding the region\'s bailout fund, while backing a plan being drawn up for national balanced-budget amendments and more economic integration in the region. Nordea is down 19 per cent this year, SEB has lost 29 per cent, Handelsbanken 17 per cent and Swedbank two per cent. Balance sheets Finance Minister Anders Borg has also pushed for more stringent capital requirements than those recommended by the Basel Committee. Policymakers argue Sweden needs tighter rules because its banking industry is about four times the size of the country\'s gross domestic product. The four biggest banks had combined balance sheets of 11.3 trillion crowns (Dh6.5 trillion) last year and profit before tax of 70 billion crowns (Dh40 billion), Riksbank Deputy Governor Lars Nyberg said in a speech on May 17. Their foreign currency borrowing has risen to about 1.5 trillion crowns (Dh0.8 trillion) from 200 billion crowns (Dh115 billion) in 1998, making them vulnerable to a liquidity crisis, One solution would be to \"tax what we think imposes costs on society,\" Frisell said. \"We have the capital requirements for the banks so we can also charge an extra tax on short debts.\"