Financial Stability Report 2020:2

The support measures implemented by governments, central banks and other authorities, both in Sweden and abroad, have ensured that the Swedish financial system has so far coped with the challenges of the pandemic relatively well. However, the risks to financial stability are still elevated. If the crisis now deepens and becomes more prolonged, further measures may be needed to support credit supply and safeguard financial stability.

The Riksbank’s stability assessment in brief

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The support measures implemented by governments, central banks and other authorities, both in Sweden and abroad, have ensured that the Swedish financial system has so far coped with the challenges of the pandemic relatively well.

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The risks to financial stability are still elevated. The increased spread of the coronavirus means that restrictions and behavioural changes will slow down an economic recovery in the near term, and that bankruptcies in the corporate sector may increase significantly.

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The risks and vulnerabilities that the support measures can build up in the longer term are subordinate to the need to combat the immediate economic consequences of the pandemic. The timing for phasing out the support measures, and how quickly this occurs, must be chosen with considerable care.

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Banks need to do what they can to supply sufficient credit to companies and households. They may therefore need to use their capital and liquidity buffers, and should refrain from paying dividends to shareholders until further notice.

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Resilience in the financial system needs to be strengthened again when the economic situation permits. If banks have used parts of their buffers, they need to build up sufficient capital and liquidity again. The established regulations on banks’ capital and liquidity should be retained and not undermined.

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Measures are required to reduce the risks linked to household indebtedness. Measures are needed in both housing and taxation policy. If such measures are not implemented, new macroprudential policy measures may need to be introduced, or the measures already implemented may need to be tightened going forward. The exemption introduced in the amortisation requirement for Swedish households should remain temporary.

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The shortcomings in the corporate debt market need to be addressed. It is particularly important to remedy the lack of transparency.

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Climate-related risks need to remain an important part of the supervision and be integrated into the financial stability analysis. It is important to improve risk reporting and statistics.

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Updated 11/11/2020