The high level of debt among Swedish households poses a risk to individual households and, in the long run, also to financial stability. Finansinspektionen FI currently believes that raising the risk weight floor to 25 per cent would be a sound decision. Major Swedish banks have sufficient resilience to a sharp downturn in the economy, but their considerable dependence on market funding continues to be a risk. The major banks should therefore be conservative in the long run with regard to dividends since they have small margins above the buffer requirements. These are the conclusions from FI’s annual Risk Report.
Household debt consists mainly of mortgages and is very high both from a historical and an international perspective. This poses a risk to individual households with small margins and in the long run it can also pose a risk to financial stability. If the debt growth rate continues to be high, measures such as a targeted capital requirement in the form of a higher risk weight floor on mortgages and the implementation of a countercyclical buffer may become relevant. However, it is important that these measures are carefully weighed against one another. FI currently believes that raising the risk weight floor to 25 per cent would be a sound decision. This decreases the need to fully utilise the countercyclical capital buffer.
The major Swedish banks over time have become increasingly dependent on the financial markets for funding, and this dependence is greater than for most other banks in Europe. This is of particular concern given that the banks borrow funds on short maturities but issue loans with much longer maturities.
The capital requirements on the major Swedish banks are high and the banks meet these requirements. FI’s stress test and sensitivity analyses, however, show that the banks’ margins above the buffer requirements are small. Since the capital requirements could be raised in the future as a result of new measures, FI believes that the banks in the long run should be cautious when distributing profits to shareholders and buying back shares.