FI Proposes Approach to Assess Pillar 2 Guidance for Swedish Banks
The Swedish Financial Supervisory Authority (Finansinspektionen or FI) proposed an approach to assess the Pillar 2 guidance for Swedish banks. As part of the proposed two-step approach, FI will first conduct a sensitivity-based stress test that estimates the potential fall in capital levels at the bank, given a number of assumptions and methodology choices. The outcome of the stress test will be rounded off into intervals. Then, FI will consider other quantitative and qualitative grounds of assessment. The final Pillar 2 guidance will be determined after an overall assessment of both steps. Comments on the proposal may be submitted to FI no later than March 12, 2021.
As part of the implementation of the EU's new capital adequacy regulations in Sweden, FI may establish Pillar 2 guidance for each bank that is subject to the Capital Requirements Regulation (CRR). FI must assess an appropriate level for each bank's own funds to, for example, cover risks and manage future stress situations, in addition to the existing coverage from the minimum requirements, the additional own funds requirements, and the combined buffer requirement, or the requirement on a leverage ratio buffer. If FI determines that more capital is needed, this will be communicated to bank via the Pillar 2 guidance. In line with its previous communication, the authority makes the assessment that for most banks the guidance will amount to 1.0% to 1.5% of the risk-weighted assets and 0.2% to 0.5% of the exposure amount for the leverage ratio. FI intends to apply the new approach, starting with the Supervisory Review and Evaluation Process in 2021. The firms that are affected are those subject to the Credit Institutions and Securities Companies (Special Supervision) Act.
In addition, FI informed EBA that it intends to apply EBA guidelines on the appropriate subsets of sectoral exposures to which competent or designated authorities may apply a systemic risk buffer in accordance with Article 133(5)(f) of the Capital Requirements Directive IV (2013/36/EU). The guidelines suggest a common framework of dimensions and sub-dimensions from which the relevant authority can define a subset of exposures. EBA published the guidelines on September 30, 2020 and they became applicable from December 29, 2020. FI believes that EBA guidelines addressed to competent authorities or financial market players are to be equated with the Swedish general guidelines. Regulation 1093/2010 establishes that EBA requires competent authorities or financial market participants to seek to comply with these guidelines by all available means. As the ordinance has direct effect, FI will not issue its own general advice, but when FI deems it necessary, guidelines may be reworked into binding rules in the form of regulations.
Related Links
Comment Due Date: March 12, 2021
Keywords: Europe, Sweden, Banking, Pillar 2, CRR, Basel, Stress Testing, Regulatory Capital, Systemic Risk Buffer, Sectoral Exposure, Systemic Risk, CRD, EBA, FI
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
