Financial Stability Report 2021:2

The economic recovery in Sweden and abroad has been strong but some slowdown in growth is expected going forward. The Swedish financial system is working well, credit supply has been maintained and important financial markets are functioning satisfactorily. In addition to the uncertainty associated with the pandemic as such, the problems of supply chains and rapidly rising energy prices may continue to dis-rupt economic activity. There is also uncertainty about future interest rates and possible effects on asset prices that could lead to increased market turbulence. In addition, household debt has continued to increase. Overall, the risks that may threaten financial stability remain elevated.

The Riksbank’s stability assessment in brief, November 2021

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Strong economic recovery in Sweden and abroad, but some slowdown in growth is expected going forward. The Swedish financial system is working well. Credit supply has been maintained and important funding markets are working satisfactorily.

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The risks to financial stability are still elevated. In addition to the uncertainty associated with the pandemic as such, the problems of supply chains and rapidly rising energy prices may continue to disrupt economic activity. There is also uncertainty about future interest rates and possible effects on asset prices that could lead to increased market turbulence. Household debt has also continued to increase.

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Monetary policy needs to remain expansionary for inflation to be persistently close to the target going forward. At the same time, overall economic policy must factor in that the vulnerabilities in the financial system are growing. The Riksbank therefore supports the raising by FI of the countercyclical capital buffer, and considers it important that FI continues to raise the buffer level.

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The high level of household indebtedness calls for broad reforms in housing and tax policy, and it is problematic that these are still lacking. New macroprudential policy measures may therefore need to be introduced, or the measures already implemented may need to be tightened going forward. Macroprudential policy measures need to limit households’ scope for borrowing or reduce their interest-rate sensitivity.

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As the economic situation improves, the temporary easing of bank regulation needs to be withdrawn, both in Sweden and abroad. Globally agreed standards such as Basel III need to be implemented in a full, timely and consistent way, without being watered down.

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Measures are needed to improve the functioning of the corporate bond market and to manage the liquidity risks of investment funds. The Riksbank supports FI’s work towards a standard for a Swedish benchmark bond and FI’s proposals for changes in fund legislation.

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It is important that market participants use the SWESTR reference rate for financial contracts so that the Swedish markets keep pace with developments in the rest of the world.

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To improve resilience to cyber attacks, it is important that the national cybersecurity centre's role with regard to the financial sector is clarified.

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Climate-related risks need to be incorporated into financial agents’ risk analyses. In addition, banks urgently need to start reporting standardised metrics according to TCFD recommendations.

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Updated 10/11/2021