ESRB published its opinion on the Swedish notification of a stricter national measure on prudential requirements for credit institutions and investment firms, based on Article 458 of the Capital Requirements Regulation (CRR or EU Regulation No 575/2013). The measure implies an average risk-weight floor of 25% on the Swedish mortgage exposure portfolios of the internal ratings-based (IRB) banks. ESRB opines that the stricter measure is justified, suitable, proportionate, effective, and efficient.
Finansinspektionen, acting as designated authority for the purpose of Article 458 of CRR, notified ESRB) on May 24, 2018 of its intention to apply a stricter national measure for credit institutions using the internal ratings-based (IRB) approach. The draft stricter national measure concerns risk-weights for targeting asset bubbles in the residential property sector. It consists of the imposition, on all domestic IRB credit institutions, of a credit institution-specific minimum level (floor) of 25% for the exposure-weighted average risk-weight on retail exposures in Sweden secured by immovable property. The draft stricter national measure should come into force on December 31, 2018. To assess the draft stricter national measure notified by Finansinspektionen, the ESRB assessment team referred to in Decision ESRB/2015/4 issued an assessment note.
ESRB believes that the announced structural changes in the Swedish banking sector may reduce the effectiveness of macro-prudential instruments currently in force in Sweden, in particular the macro-prudential use of Pillar 2, which can lead to changes in the intensity of macro-prudential or systemic risks arising from the residential real estate sector of such nature as to pose risk to financial stability at national level. The draft stricter national measure does not entail disproportionate adverse effects on the whole or parts of the financial system in other member states or in EU; the issue concerns only one member state. The risks will not be addressed by other measures in CRR or CRD IV. The draft stricter national measure does not have a negative impact on the internal market that outweighs the financial stability benefits resulting in a reduction of the macro-prudential or systemic risks identified.
Keywords: Europe, Sweden, Banking, Macro-prudential Policy, IRB Approach, Mortgage Exposure, CRR, Systemic Risk, ESRB
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
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