FI and the Financial Stability

This means that:

• The financial system plays an important role in the economy. A stable and well-functioning financial system is necessary for the economy to function and grow. A serious crisis in the financial system could lead to extensive costs for the economy and society.
• Financial systems are vulnerable, This applies primarily – but not only – to banks. If depositors or other financiers start to lose faith in a bank, major problems may quickly arise – regardless of whether the fears are grounded are not. Various parts of the system are also closely linked. Because of this, problems arising in one firm or market can quickly spread to others.
• Firms themselves neither have a sufficient overview of nor face adequate incentives to fully manage the risks for the system as a whole. The government must therefore take an active role.

Supervision

The most important goal of supervision is to influence the balance between risk-taking and resilience to such an extent that vulnerability is reduced. This does not mean that all risks should be minimised or eliminated. A financial system can be regulated so strictly that it can withstand every conceivable shock, but at the cost of sharply reduced efficiency. Supervision must always aim to achieve a balance between stability and efficiency.

Negative effects for society can arise in and be amplified by the financial sector, even if the core functions are upheld and the system itself is stable. The Government therefore expanded FI's assignment a few years ago. FI's traditional objective of safeguarding stability in the financial system has been supplemented by a further objective – stabilising the credit market. A too rapid expansion – or contraction – in lending to households and corporates could have major effects on consumption and investments, which could result in major disruptions to the economy. This type of problem is the focus of FI's macroprudential supervision.

Role of FI and other authorities

Financial stability requires cooperation between different authorities and policy areas, which in turn requires a clear distribution of responsibility in order to create correct and realistic expectations of what FI and other authorities are able to do and should be doing. This applies to activities that prevent crises and manage crises that may still arise.

Financial Stability Report

The Government requires FI to describe and analyse twice a year the stability of the financial system, the risks posed to this stability and conceivable measures to mitigate these risks. The analyses are based on what is happening both at the level of individual firms and in the economy at large. It is mainly in this interplay that stability risks arise.

Resolution

Pursuant to the Resolution Ordinance (2015:1034), FI shall provide a list of the firms that are subject to Chapter 1, section 1, first paragraph of the Resolution Act (2015:1016). See FI's Company Register