Featured Product

    EBA Agrees to Extension of Macro-Prudential Measure by Swedish FSA

    October 19, 2020

    EBA published an opinion on the intention of the Swedish Financial Supervisory Authority (Finansinspektionen or Swedish FSA) to extend a measure to enhance the resilience of Swedish banks to potential severe downward corrections in the residential real estate markets. The measure, introduced in 2018 under Article 458 of Capital Requirements Regulation (CRR), is a credit institution-specific minimum level of 25% for the average risk-weight on Swedish housing loans applicable to credit institutions that have adopted an internal ratings-based (IRB) approach. In its opinion, EBA did not object to the extension of this measure for one year—up to December 30, 2021.

    With the extension of the proposed measure, Swedish institutions adopting the IRB approach would be subject to a minimum level of 25% risk-weight on Swedish retail loans secured by real estate. This risk-weight floor will act as a backstop to ensure that these credit institutions fully capture the risk of credit losses stemming from a severe downward correction in real estate markets. In its opinion, EBA acknowledges, in line with the recommendation on medium-term vulnerabilities in the residential real estate sector in Sweden issued by ESRB, that the combined increase in house prices and debt levels could pose a threat to the financial stability in Sweden in the event of a downturn. In the light of the current circumstances and the COVID-19 pandemic, EBA provided some additional observations:

    • The COVID-19 pandemic may have material implications for the systemic risk related to the housing market in Sweden. Since, it is too early to assess the impact of the current crisis, EBA invites the Swedish authorities to reassess the current measure as soon as the first effects of the crisis on Swedish households’ demand for residential mortgages and also on banks’ supply become visible, taking into consideration that, in the current exceptional circumstances, it is important to support the flow of credit to the real economy.
    • It is also important to monitor the impact of this measure on lending to small and medium size enterprises (SMEs) and intervene in case there are unintended consequences.

    The measure has been in place in one form or another since 2013, originally introduced through Pillar 2 and then replaced in 2018 by the current Article 458 measure. Over recent years, Sweden has experienced a significant and prolonged build-up and intensification of systemic risk related to the housing market and this risk has never been eliminated. Therefore, this measure is becoming permanent rather than temporary and is being used to fix structural issues in the modeling of IRB models that have remained throughout the years. EBA invited the Swedish authorities to reflect on how these issues could be fixed. In addition, EBA invited Swedish FSA to reassess rationale for the measure in the light of the effects of the forthcoming changes to the applicable regulatory framework (in particular, the sectoral systemic risk buffer and the output floor).

     

    Related Links

    Keywords: Europe, Sweden, Banking, CRR, IRB, Systemic Risk, Opinion, COVID-19, Swedish FSA, Macro-Prudential Policy, IRB Approach, Basel, Regulatory Capital, EBA

    Featured Experts
    Related Articles
    News

    EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation

    The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).

    May 23, 2022 WebPage Regulatory News
    News

    EBA Publishes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.

    May 23, 2022 WebPage Regulatory News
    News

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    News

    EU to Amend Credit Risk Adjustment Rules; ESAs Submit Queries on SFDR

    The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    May 13, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.

    May 12, 2022 WebPage Regulatory News
    News

    MAS Amends Notice 635 and Issues Second Proposal on Green Taxonomy

    The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.

    May 12, 2022 WebPage Regulatory News
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8201