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.
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Related Articles
EBA Publishes Standards on Disclosure of Investment Policy Under IFR
The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).
EBA Updates Filing Rules for Supervisory Reporting
The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.
ECB Amends Guideline on Procedures for Collection of AnaCredit Data
The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.
APRA Finalizes Guidance for New Prudential Standard on Remuneration
The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.
OCC Updated LIBOR Self-Assessment Tool for Banks
The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).
TCFD Updates Guidance for Financial Disclosures on Climate Risk
The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
BCBS Report Examines Progress on Adoption of Basel III Framework
The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.
ACPR Implements Updates Related to DPM Version 3.1
The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.
EBA Note Examines Transition Risks of Benchmark Rates
The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.
OSFI to Communicate Next Steps on Climate Risk Policy in Early 2022
In a letter to the federally regulated financial institutions and pension plans, the Office of the Superintendent of Financial Institutions (OSFI) published a summary of the feedback received to the January 2021 discussion paper on ways to address climate risks.
