This year’s supervision report describes, at an overarching level, the Swedish banking system, how FI works with supervision and a number of topical risk areas currently in focus.
FI's supervision of banks is an important part of the preventive work with financial stability. FI currently supervises 124 banks, credit market companies and other credit institutions. The Swedish banking system is dominated by the four systemically important banks which have a major impact on financial stability, and are thus subject to intense supervision. The domestic banking market also consists of a great number of medium-sized and smaller banks with greatly diverging business models.
An important tool presented in more detail in the report is the supervisory review and evaluation process (SREP) – an EU-wide framework for the continual and uniform assessment of the risks to which a bank is or could become exposed. The process originates from lessons learned from the 2008 financial crisis, and the fact that many banks operate in several EU countries today. The outcome of this assessment forms the basis of FI's positions on individual banks' capital levels, liquidity status and risk management.
The report also describes how FI has tightened a method for calculating the long-term probability of default (PD) of banks. Banks authorised to use internal models for calculating their capital requirements must use the new stricter method, although few have done so thus far. FI follows this matter in its ongoing supervision and, for the time being, requires banks to hold additional capital until they have adapted their calculations.
Increasing digitalisation, and the growing threat of cyber attacks in the banking sector, and in society at large, are also addressed in the report. These risks place increased demands on the banks' information security. FI emphasises the importance for the boards and executive management of banks to get involved in this work.
FI's supervision concerns many areas, but any deficiencies and problems at the banks often originate from inadequate risk management, governance and control. In 2014, FI clarified the requirements regarding how the banks are expected to govern and organise their business, and how they are to manage risks and control the operations. In many respects, the banks fulfil these requirements, although FI's report shows a number of remaining weaknesses in this area.