Banking on Baltic stability.

With its name plastered on Riga's most prominent skyscraper, Swedbank physically dominates the biggest Baltic city. And as the largest bank in all three countries, it towers over the region financially, too.

During the good years, lending by Swedbank was one of the major engines of growth. Since entering the Baltic market in the mid 1990's, its high profile corporate philanthropy and practicing of Nordic business practices have contributed hugely to the local economies. Now that the boom has turned to bust, some are laying at least some of the blame on the banks.

Top Swedbank officials at the Baltic Development Forum appeared to agree, with Swedbank CEO Michael Wolf issueing a cautious mea culpa.

"We were lazy and we took some risks on the balance sheet that shouldn't have been there," he said. "We were blinded because the countries were headed for the European Union, and we failed to price risk correctly and a bubble developed at massive speed."

Adding that "the financial sector has been part of the problem, but can be part of the solution," he called for dialogue with governments to alleviate the boom and bust cycle and to modernize financial markets. The bank will in future be more discerning about who it lends to, in the interests of both the borrowers and Swedbank's embattled shareholders.

"The three Baltic countries are part of our home market, and we see no reason to take any but a very long term view," said Wolf.

However, Swedbank officials are keeping close-lipped on sensitive issues such as the exact amount of losses they have suffered. And there is tension over the bank's lending policies. Latvian Economy Minister Atis Kampars called on Swedish banks to work with "stable, serious companies" suffering short-term problems because of a perceived credit drought. Cecilia Hermansson, Swedbank's chief economist, argued that Latvia must improve productivity, and letting unsustainable companies go under is part of the process.

Swedbank leaders said they do not see any political risk in Latvia, despite some populist politicians raging against the Swedish banks. However, there have been worrying indications after the conference that hitherto respectable Latvian politicians are starting to sing this tune. Prime Minister Valdis Dombrovskis called for legislative amendments to limit the liability of defaulters to the value of their collateral, rather than saddling them with the full amount of loans for properties that are in negative equity. Dombrovskis also said banks should have to provide alternative housing for evicted homeowners.

In response, Swedbank's Vice President of Corporate Communications Thomas Backteman said in an interview with The Financial Times that Dombrovskis' plans could have major consequences.

"If this runs through we need to reconsider our operations in Latvia," he said. It's going to be very complicated for us to work in an environment where the government decides retroactively on legal issues which affect our contracts with the clients. That's very far from the established legal practice in the EU."