Financial Stability Report 2024:1

Lower inflation and expectations of interest-rate cuts on global financial markets have helped loosen financial conditions, which has reduced near-term risks. However, there is considerable uncertainty, and if policy rates remain high for a long time, this would increase the pressure on the financial system. In addition, geopolitical risks remain high, which is also contributing to cyber risks. The Swedish financial system has fared well so far, but the challenges have been particularly large in some sectors, not least in the property sector.

The Riksbank’s stability assessment in brief, May 2024

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The stability risks have declined in the near term, but there is considerable uncertainty. As a result of lower inflation, developments on the global financial markets have been characterised by expectations of interest rate cuts, contributing to less tight financial conditions. However, there is considerable uncertainty, and if policy rates remain high for a long time, this would increase the pressure on various participants in the financial system. In addition, geopolitical risks remain substantial, which also contributes to high cyber risks.

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Measures are needed to strengthen confidence in the property sector. The situation for property companies has improved, but the higher interest rates has not yet had a full impact on their funding costs, and there is a risk that the rental market and property values will remain weak in the future. Vulnerable property companies therefore need to continue to strengthen their balance sheets and reduce their risk-taking. To strengthen confidence in the sector, it is also important that companies increase transparency around property valuations, and that rating agencies review their methodologies to make ratings more robust.

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Structural reforms of the housing and mortgage markets would make the Swedish economy better equipped. Households' high indebtedness and short interest-rate fixation periods mean that interest rate changes have a major impact, not least on consumption, which has clearly declined. Macroprudential measures have contributed to a relatively high level of resilience among mortgagors, but reforms are needed to address the fundamental problems in the housing market.

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The resilience of the major Swedish banks is good, but the risks are greater for consumer credit banks. For some of the consumer credit banks, loan losses are increasing. More and more of these banks are also joining so-called deposit platforms, where deposits can be more flighty. Although the consumer credit banks are smaller than the major banks, they can be systemically important as a group. In order to improve the credit assessment of consumer loans, it is urgent to implement the proposal for a register of all borrowers' loans.

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A macroprudential framework should be introduced for non-banks. The non-banking sector is becoming increasingly complex, with greater interconnectedness between actors, but there is no macroprudential framework for the sector. Moreover, funds in particular can be sensitive to large outflows, thereby creating stress on the asset markets in which they invest. The Riksbank believes that funds should implement more liquidity management tools to reduce their liquidity risks. The actors who set the requirements for the funds offered to pension savers or as part of life insurance products should work in this direction.

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Updated 29/05/2024