Financial Stability Report 2023:1

High inflation and higher interest rates are challenging the stability of the global financial system. Over the last year, several crisis-like events have taken place, where authorities have taken action to avoid a possible financial crisis. Not least this spring when problems arose for banks in the United States and Switzerland. This illustrates that vulnerabilities can be exposed when economic conditions change rapidly and unexpectedly, and that it can be difficult to predict where problems may arise. The risks in the global financial system are elevated.

Overall, the Swedish financial system has functioned well also during times of turmoil on global financial markets. However, there are vulnerabilities that have long characterised the Swedish economy that now entail challenges. This applies not least to the highly-indebted property companies and the banks’ large exposures to the sector, as well as high household indebtedness.

Property companies are under pressure from the higher interest rates, partly because their funding costs have increased and partly because the value of their properties is falling. The Riksbank considers it important that these companies continue to make adjustments to strengthen their balance sheets. The banks also have an important role to play, both by maintaining the supply of credit to viable companies and within the framework of their lending, by requiring property companies to take measures to reduce their financial risks.

Household indebtedness and households’ short interest-rate fixation periods may entail risks for the stability of the macroeconomy and in an unfavourable scenario for financial stability. The Riksbank considers that structural reforms are needed to improve the functioning of the housing market and contribute to long-term sustainable debt development. Moreover, it is important to retain the amortisation requirement and mortgage cap.

In light of the prevailing risk outlook, and given the banks’ important role in the supply of credit, it is particularly important for them to safeguard their relatively favourable starting position. The Riksbank considers that the major banks should endeavour to have margins in addition to the capital and liquidity requirements, for example by showing restraint with large dividends and share buybacks. This would also safeguard confidence among their financiers.

Both Swedish and foreign stability authorities must be vigilant of developments and be ready to take action under their respective mandates, should the situation require it. As a central bank, the Riksbank has, for example, the possibility of providing liquidity assistance. However, it is important for market participants to realise that they cannot always count on support measures.

There are also other vulnerabilities in the Swedish financial system that need to be addressed. Bankgirot is a central element of the Swedish payment system. In light of the withdrawal by P27 of its application for a clearing license, it is of the utmost importance that the banks take their responsibility for Bankgirot and ensure that the payment infrastructure functions well. The Riksbank has deepened its oversight and is carefully monitoring how the banks manage Bankgirot.