Financial Stability Report 2021:1

With the help of extensive support measures, the Swedish financial system has coped relatively well during the pandemic and a financial crisis has been avoided. Credit supply has been maintained and important funding markets are now working satisfactorily. However, the risks to financial stability are still elevated. It is important for economic policy to continue to support the economic recovery, while also taking longer-term vulnerabilities into account.

The Riksbank’s stability assessment in brief May 2021

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With the help of extensive support measures, the Swedish financial system has coped relatively well with the coronavirus pandemic and a financial crisis has been avoided. Credit supply has been maintained and important funding markets are now functioning satisfactorily.

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However, the risks to financial stability are still elevated. The continued course and effects of the pandemic are uncertain. Bankruptcies and loan losses may increase, at the same time as the support measures are increasing vulnerabilities in the longer run, for example through rising asset prices and increased indebtedness.

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Economic policy needs to continue to support the economic recovery, while at the same time taking longer-term vulnerabilities into account. The Riksbank supports FI’s decision not to extend the exemption from amortisation requirements. If the economy develops as expected, it is also desirable that FI should announce that the value of the countercyclical capital buffer will be increased.

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As the economic situation improves, the temporary relaxation of banks’ regulatory frameworks needs to be withdrawn. Globally agreed standards such as Basel III need to be implemented in full, in time and in a consistent manner, without being watered down.

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High household indebtedness makes it necessary to take measures within housing and tax policy. Otherwise, new macroprudential policy measures may need to be introduced, or the measures already implemented may need to be tightened going forward.

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Investment funds with holdings of corporate bonds need to improve their liquidity preparedness. Regulatory frameworks and business conditions also need to be revised to ensure that funds investing in less liquid assets, such as corporate bonds, cannot offer daily redemptions. Measures also need to be taken to improve the functioning of the corporate bond market.

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It is important that market participants begin to use the Swedish transaction-based reference rate SWESTR, partly because bid-based reference rates are insufficiently reliable.

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To enable better management of cyber risks and strengthen the resilience of the financial system to these risks, the allocation of responsibility between authorities needs to be clarified and developed. Cooperation between authorities and private agents also needs to be strengthened.

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Climate-related risks require more and better reporting, and a global standard for sustainability reporting is now taking shape under the auspices of the IFRS Foundation. To be in line with this work, companies now need to start reporting in line with the recommendations from the TCFD.

Updated 26/05/2021