The Riksbank is strengthening the risk buffer
News The financial risks on the Riksbank’s balance sheet have increased, due in part to the monetary policy measures implemented in 2020 to mitigate the effects of the coronavirus pandemic on the Swedish economy. The Riksbank has therefore decided to make a provision of SEK 5 billion to strengthen resilience against any future losses. The provisions are a long-term measure that reduces the risk of the Riksbank’s equity falling too low or becoming negative.
In recent years, monetary policy has changed substantially, as a result of crises and structural changes. This has resulted in the Riksbank using its balance sheet more actively as a monetary policy tool. This development accelerated in 2020, when the Riksbank implemented a number of measures to combat the negative consequences of the coronavirus pandemic for the economy. These measures include purchases of government bonds and treasury bills, municipal bonds, covered bonds and bonds and commercial paper issued by non-financial corporations, as well as various loan programmes.
Even if the Riksbank’s holdings of securities and outstanding loans are associated with low risks, the development means that the total risks on the balance sheet have increased. The Riksbank can manage the increased risks in the short term. To manage the risks in the longer term, it is appropriate to strengthen the Riksbank’s risk-absorbing buffer.
Over time, it is expected that the Riksbank’s risk buffer will have to increase by at least SEK 15 billion. The Riksbank has therefore decided to strengthen the risk buffer by making a financial risk provision of SEK 5 billion for 2020. The provision reduces the Riksbank’s reported result and distribution-qualifying result for 2020 by the equivalent amount.
It is the normal practice of most central banks in Europe to make provisions for financial risk.
Under accounting rules, the provision for 2020 may only be based on decisions taken by the Riksbank up to and including 31 December 2020. The estimated need to strengthen the risk buffer does not therefore take into account the recent decision to change the funding of the foreign currency reserve.
From now on, the Executive Board will make an annual assessment of the Riksbank risk provisions, given the risks on the balance sheet and the appropriate size of the risk-absorbing buffer.
See the Riksbank’s current balance sheet. The risk provisions will appear on the balance sheet on the afternoon of 19 January.