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

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News
    News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697