Financial Stability Report 2022:2

Both the Swedish and the global financial system are facing significant challenges. Russia's invasion of Ukraine has caused serious disturbances in the energy market in Europe, and electricity prices are very volatile and periodically at very high levels. Inflation is high and the central banks have therefore tightened monetary policy swiftly. In several countries, the financial conditions have tightened considerably. The combination of high inflation and higher interest rates has contributed to a deterioration in growth prospects abroad.

The risks to financial stability in Sweden have increased. After many years of low inflation and very low interest rates, rising asset prices and increasing indebtedness, it is uncertain how economic agents will manage a rapid rise in inflation and interest rates. This applies especially in light of the vulnerabilities that have been building up in the Swedish financial system for a long time. Vulnerabilities primarily include the banks' exposure to the highly indebted commercial property companies, but also the high level of indebtedness among households.

Current developments entail an increased risk for major loan losses among the major Swedish banks. To enable them to cope with potential losses and remain well-placed to provide credit to the economy, it is important that the resilience of the banking sector is high. The Riksbank considers that the banks should exercise restraint regarding large dividends and share buy-backs to allow greater financial flexibility.

The current economic and geopolitical situation means that both Swedish and foreign authorities with financial stability responsibilities must monitor developments closely and be ready to take action if the situation requires it. The Riksbank has, for example, the possibility to provide liquidity if necessary. However, it is important that market participants realise that they cannot always count on support measures, since it is not within the Riksbank's mandate to facilitate for individual agents who have taken excessive risks.

The Riksbank considers that the macroprudential measures introduced by Finansinspektionen should be retained. Although the economic outlook has worsened, it is also important to take the structural measures required to create long-term sustainable debt development and a better-functioning housing market.

The cyber threat has increased recently and it is therefore important to rapidly strengthen the ability to prevent, detect and manage cyber threats. The Riksbank notes that this work is progressing, but the ambition and pace should be increased. The Riksbank also considers that the Swedish banks should now report their exposures to climate risks in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures.

The corporate bond market needs to be more robust, transparent and liquid. The Riksbank also calls on market participants to use fully transaction-based reference rates, such as SWESTR, in financial contracts to avoid falling behind the international community in the use of such rates. To promote such a transition, the Riksbank has established a forum for market participants.