Erik Thedéen at the Committee on Finance: High inflation and rising interest rates are testing the resilience of the Swedish financial system

“After many years of low inflation and very low interest rates, increasing asset prices and rising indebtedness, it is uncertain how economic agents can cope with a rapid rise in inflation and interest rates.” These were the words of Erik Thedéen when he today attended the Committee on Finance’s open hearing on financial stability. In addition to the Riksbank Governor, others taking part in the committee hearing included Minister for Financial Markets Niklas Wykman, acting Director-General of Finansinspektionen Susanna Grufman, and Swedish National Debt Office Director-General Karolina Ekholm.

Date: 31/01/2023 09:00

Speaker: Governor Erik Thedéen

Place: Sveriges Riksdag, Förstakammarsalen

Erik Thedéen emphasised that significant vulnerabilities have built up in the Swedish financial system over time. “These vulnerabilities primarily include banks’ and bond holders’ exposure to highly indebted commercial property companies, although high household indebtedness also makes the system vulnerable,” he said. There are also additional challenges to the Swedish financial system, such as the substantial fluctuations in energy prices.

Macroprudential measures need to be safeguarded

Erik Thedéen pointed out that the macroprudential measures implemented by Finansinspektionen, such as amortisation requirements, help to increase resilience. “However, broad reforms to housing and tax policy are required to enable the housing market to function better and cope with the risks associated with household indebtedness,” the Governor said. He also emphasised that the inquiry’s proposal for new statistics on household assets and liabilities is an important issue. “Registers of household assets and debts have been in place in Norway and Denmark for a long time and are used by both central banks and researchers. The lack of such statistics in Sweden imposes constraints on the analysis of important questions linked to financial stability and monetary policy, such as how vulnerable highly indebted households are. It is important that the inquiry’s proposal, which has been circulated for comment, leads to a change,” Erik Thedéen emphasised.

Resilience needs to be strengthened in several areas

Erik Thedéen pointed to several incidents last year, as well as during the pandemic, that have exposed liquidity risks among financial agents other than banks. The vulnerabilities of corporate bond funds, who are important investors in Swedish corporate bonds, need to be managed. In addition, the Governor highlighted the increase in cyber threats due to the deterioration of the security situation in 2022. It is important to promptly strengthen our capacity to prevent, identify and manage cyber threats, Thedéen said in conclusion.

Updated 31/01/2023