A stable, well-functioning financial market for allA stable, well-functioning financial market for allUpdated approach to assessing Pillar 2 guidance for Swedish banks
Finansinspektionen has decided on an updated approach for assessing the size of the Pillar 2 guidance for Swedish banks. The updated method contains in part new intervals and an upper limit on how much the outcome of the sensitivity-based stress test can contribute to the final guidance.
Due to the EU's new capital adequacy regulations that were implemented in Sweden in 2020 and 2021, Finansinspektionen must establish a so-called Pillar 2 guidance for Swedish banks. During the spring of 2021, FI decided on an approach for determining the size of the Pillar 2 guidance.
On 4 April 2023, we submitted for consultation a proposal for a number of minor improvements and updates to the method for the Pillar 2 guidance. After having considered the responses, FI has now decided on the method that will apply going forward. All of the details are described in the decision memorandum below.
General methodology
In connection with a supervisory review and evaluation process (SREP) of an institution, FI must assess what constitutes an appropriate level for the bank's own funds in order to, for example, cover risks and manage stressed scenarios that are not covered by the minimum requirements, the additional own fund requirements (Pillar 2 requirements) and the combined buffer requirement or the requirement on a leverage ratio buffer. If we determine that a bank needs more capital, we communicate this to the bank via a Pillar 2 guidance.
FI starts with a sensitivity-based stress test that estimates how much the bank's capital ratio would be impacted when applying a number of assumptions and methodology choices. After any institution specific adjustments the outcome from the stress test is rounded off into buckets. FI then considers other qualitative grounds for assessment. The final Pillar 2 guidance will be determined based on an overall assessment.
Primary changes
The updated method contains in part new intervals for both the risk-based guidance and the leverage ratio guidance as well as an upper limit on how much the outcome of the sensitivity-based stress test can contribute to the final guidance. In addition, we have also updated the descriptions of the process itself and made several smaller updates to the stress test approach.
Entry into force and application
The updated approach will be applied as of 31 May 2023 and replace the previous method "Övergripande ansats för att bedöma pelare 2-vägledningen för svenska banker" (General approach to assessing Pillar 2 guidance for Swedish banks) (FI Ref. 20-28036) from 2021.
The firms that are affected are credit institutions subject to the Credit Institutions and Securities Companies (Special Supervision) Act (2014:968).
