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    FI Issues Multiple Regulatory Updates and Financial Stability Report

    December 17, 2021

    The Swedish Financial Supervisory Authority (FI) decided to extend the risk-weight floor of 25% for Swedish mortgage exposures by two years, from December 31, 2021 to December 30, 2023. The decision applies to the firms that issue mortgages in Sweden and apply the internal ratings-based (IRB) approach for calculating risk-weighted exposure amounts for credit risk. FI also published the results of a survey on remuneration systems, noting that several banks and credit market companies have the scope to improve their remuneration policies and the application of certain other provisions in the remuneration regulations. In addition, it published the year's second financial stability report, which highlights that FI has removed the general possibility to receive an exemption from the amortization requirement and re-activated the countercyclical capital buffer for banks. FI has set the buffer at 1%, which goes into effect as of September next year. Additionally, FI published capital requirements for the largest Swedish banks and credit institutions that belong to supervisory categories 1 and 2 as of the end of the third quarter of 2021.

    Capital Requirements for Banks

    The capital requirements have been published for Handelsbanken, SEB, Swedbank, Länsförsäkringar, Klarna, Kommuninvest, Svensk Exportkredit (SEK), SBAB, Avanza, and Nordnet. However, Skandiabanken, Landshypotek, and Sparbanken Skåne have been excluded from this since they have been transferred from supervisory category 2 to 3 as of 2022. The capital requirements are based on the capital adequacy regulations, FI's application of the buffer requirements, and FI's latest review and evaluation of the firms. The most recent evaluation for SEB, SHB, Swedbank, SBAB, Nordnet, Kommuninvest, SEK, and Klarna was completed in September 2021. FI has decided on Pillar 2 requirements for these firms and communicated to them which level of Pillar 2 guidance that FI considers that these firms should keep. Länsförsäkringar and Avanza were evaluated in 2020 according to previous regulations. Consequently, the Pillar 2 requirements have not been formally decided and FI has not taken any position on Pillar 2 guidance for these companies.

    Financial Stability Report

    The financial stability report highlights that the economic recovery has been stronger than expected, in part as a result of powerful support measures. The support measures not only contributed to limiting bankruptcies and credit losses, but also encouraged high risk-taking and asset and housing prices. Thus, debt of households and commercial real estate firms has increased significantly, with commercial real estate firms having become more vulnerable during the pandemic. Within the commercial real estate sector, demand for both bank- and market-based financing continues to be high. Debt is increasing in relation to the commercial real estate companies' income and firms are more sensitive to interest rates. Increased vulnerabilities in the commercial real estate sector indicate that banks continue to need to hold large capital buffers. The Swedish corporate bond market continues to feature low market liquidity. In the presence of renewed stress on the financial markets, it may become difficult once again to trade securities and issue new financing. There is, therefore, a need for additional measures to create a more functional corporate bond market with higher resilience.

     

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    Keywords: Europe, Sweden, Banking, CRR, Basel, Risk Weight Floor, Credit Risk, Financial Stability Report, CCyB, Regulatory Capital, Lending, CRE, Pillar 2 Guidance, FI

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