Swedish regulators are worried banks have too many assets tied up as collateral for their borrowing and want them to start stating how much they have pledged, minutes of a meeting of regulators showed on Tuesday.

Concern about what the regulators called the encumbrance of banks' assets is a fresh sign of Sweden's unease about risks in the financial sector, where bank assets are about four times the size of national output, one of the highest levels in Europe.

"The participants noted that in international terms, Swedish banks have a relatively high degree of encumbered assets," the minutes of a meeting of the Council for Cooperation on Macroprudential Supervision, held early this month, said.

Regulators have already expressed concern over banks' attaching a low level of risk to mortgage lending as well as over rapid growth in mortgage lending and a reliance on short-term market funding.

Sweden's banking sector is dominated by Nordea , Handelsbanken, SEB and Swedbank .

The council, set up by the central bank and FSA bank sector regulator, noted that lenders often pledged assets to get funding or to decrease the cost of funding.

In Sweden, this included banks funding mortgage lending via covered bonds, which gave the bondholder a pledge on a specific pool of mortgages.

Extensive asset encumbrance could bring liquidity risks as banks would have fewer assets to pledge as collateral in a crisis, at a time when demand for collateral for existing debts would rise, the minutes of the meeting, which included the head of the FSA and the head of the central bank, said.

Such encumbrance could also transfer risk to taxpayers as the deposit guarantee system would not be able to recover as much from a bankrupt bank's estate if the assets had been pledged to someone else, the participants said.

"The participants also found it desirable that the banks themselves should take the initiative of beginning to publish information that makes it possible for external parties to assess their level of encumbrance," the minutes said.

Sweden has already decided to impose higher levels of capital adequacy on its banks.

(Reporting by Patrick Lannin; Editing by Susan Fenton)