The Swedish financial system is resilient, but stability risks are present. The two major risks are banks’ dependence on market funding, and high debt among households. This is the conclusion from Finansinspektionen’s (FI’s) Stability Report.
The Swedish banking system is large. A large and also interlinked banking sector, which is dependent on market funding, is sensitive to adverse developments abroad and is a risk for the Swedish economy. As already communicated by FI, Swedish banks must therefore hold larger capital and liquidity buffers than the minimum requirements imposed by the EU. A part of the new Swedish requirements is that banks must set aside extra capital of 1 per cent in what is known as the countercyclical capital buffer. A proposal for such a requirement is being circulated for consultation today.
Swedish banks have improved their liquidity in recent years, which has strengthened resilience. At the same time, FI finds that the banks should continue working to extend the maturity of their funding.
High household debt is also a cause for concern. FI has therefore introduced a number of measures in the past few years, such as the mortgage cap, increased risk weights for mortgages and amortisation plans. These measures must now be given time to take effect and be evaluated.
If needed, FI will take further action. New measures might then be directed at households and their ability and willingness to borrow. At the same time, it is also important that other policies, such as tax and housing policy, are reviewed to address the causes of household indebtedness.