STOCKHOLM, March 9 (Reuters) - Sweden's financial watchdog will continue to keep a close eye on banks' models for measuring the capital they need in relation to the risk in their lending portfolios after tightening rules last week, the agency's head said on Wednesday.
"Supervision over the internal models will remain sharp," the Financial Supervisory Authority's Erik Thedeen said in a speech.
He said the government agency thought risk-based models for setting capital levels were preferable.
But if the banks do not act responsibly the FSA could move towards a broader leverage ratio which measures capital in relation to total lending. (Reporting by Daniel Dickson; Editing by Simon Johnson)