EBA published an opinion following the notification by Finansinspektionen, the Swedish Financial Supervisory Authority (FSA), of its intention to change the method it uses to apply a risk-weight floor for Swedish mortgages through Pillar 2. It is replacing the current method with a requirement within the framework of Article 458 of the Capital Requirements Regulation (CRR). EBA does not object to the adoption of the proposed measure, which the Swedish FSA intends to apply to credit institutions that have adopted the internal rating-based (IRB) approach.
With the application of the proposed measure, Swedish institutions adopting the IRB approach would incur in the same credit institution-specific minimum level of 25% for the average risk-weight on Swedish housing loans, as currently applied through Pillar 2. This limit will act as a backstop to ensure that these credit institutions fully capture the risk of credit losses stemming from Swedish mortgages. In its Opinion, addressed to the Council, EC, and the Swedish Authorities, EBA acknowledges, in line with the warning on the vulnerabilities of the residential real estate sector issued by ESRB, that the combined increase in house prices and debt levels could pose a threat to the financial stability of banks in Sweden in the event of a downturn. In light of this conclusion, EBA does not object to the deployment, by the Swedish FSA, of macro-prudential measures.
Keywords: Europe, Sweden, Banking, Macro-Prudential Policy, IRB Approach, Mortgage Exposures, CRR, Systemic Risk, EBA
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.
Previous ArticleVicky Saporta of BoE Speaks on Future of Prudential Bank Regulation
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
PRA published updates in relation to the 2021 Supervisory Benchmarking Portfolio exercise.
FED adopted a proposal to extend for three years, with revision, the capital assessments and stress testing reports (FR Y-14A/Q/M; OMB No. 7100-0341).
HKMA revised the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.
EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.
EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).
NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.