Stability in the Financial System

The Swedish economy continues to be strong, and resilience in the financial system is satisfactory. However, a long period of low interest rates and strong growth has resulted in an elevated risk appetite, high asset prices and high debt globally, among Swedish households and on the commercial real estate market. The high level of indebtedness makes the financial sector more sensitive to shocks, and, if necessary, FI will take additional measures to strengthen the resilience.

The global economy and the Swedish economy continue to demonstrate strong growth. The European economies are continuing to recover, which has also meant that the resilience in the European banking sector has improved as profitability has increased and the number of non-performing loans has decreased. The risk that problems in the European banking sector could spread to Sweden has therefore become less prominent.

It is FI's assessment that the Swedish banks in general have satisfactory resilience to shocks due to continued good profitability, low credit losses and high levels of capital in relation to the risks in their operations. The banks' capital consists largely of buffers that can be used as temporary shock absorbers during crises. FI's capital requirements for the banks aim to maintain a stable financial system that is characterized by a high level of confidence.

The systemically important financial infrastructure in Sweden is functioning well and has a high degree of operational reliability in general. Despite stable growth and low volatility on the securities markets, there are signs of elevated vulnerabilities linked to deteriorating liquidity in systemically important markets. This can make these markets vulnerable in stressed situations when liquidity tends to deteriorate.

The insurance sector manages large amounts of assets primarily to cover future pensions. Changes in the interest rate have a large impact on the companies' positions. In the short term, life insurance firms' extensive holdings of shares represent the largest vulnerability for financial stability since large reallocations of assets could amplify a downturn in the stock markets and apply pressure to interest rates. Despite this, FI's assessment is that the firms can handle relatively large downturns in the stock markets and that stability risks are therefore limited. In the long term, insurance firms are still facing the challenge of persistent low interest rates, which together with falling asset prices could pose risks to financial stability.

Household finances are strong in general. This means that household debt constitutes a limited direct risk for the stability of the financial system. At the same time, debt is at historically high levels, and, in the event of a sharp economic downturn, this debt burden could mean that households will reduce their consumption, which in turn could further deepen the crisis. This could ultimately threaten financial stability. FI has therefore introduced a stricter amortisation requirement and is continuing to monitor the developments carefully.

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