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
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
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