EBA Agrees to Extension of Macro-Prudential Measure by Swedish FSA
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
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.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
DNB Consults on Treatment of Savings Mortgages Under Solvency IIRelated Articles
EBA Publishes Final Regulatory Standards on STS Securitizations
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.
ECB Further Reviews Costs and Benefits Associated with IReF
The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.
BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules
The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.
IOSCO Welcomes Work on Sustainability-Related Corporate Reporting
The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)
EBA Publishes Funding Plans Report, Receives EMAS Certification
The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).
MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures
The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.
BoE Allows One-Day Delay in Statistical Data Submissions by Banks
The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.
ACPR Amends Reporting Module Timelines Under EBA Framework 3.2
The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.
ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies
The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)
APRA to Modernize Prudential Architecture, Reduces Liquidity Facility
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.
