A stable, well-functioning financial market for allA stable, well-functioning financial market for allMacro-based stress tests of Swedish banks: results and method, Autumn 2022
Major Swedish banks demonstrate considerable resilience in the stress test Finansinspektionen (FI) conducted in 2022. The test identifies the potential effects on the five largest Swedish banks’ financial positions when interest rates and inflation increase. This memorandum (only available in Swedish) describes the method behind the stress test and its results.
The results of the stress test show that the banks are significantly resilient to a decrease in earnings and the credit losses that could arise in a severe scenario.
On average, the common equity Tier 1 capital ratio decreases by roughly 2 percentage points. The banks' average management buffers – the difference between the actual common equity Tier 1 capital and the common equity Tier 1 capital requirement – decreases from 5.6 to 3.4 percentage points. The smallest management buffer falls from 4.3 to 2.6 percentage points.
The fact that the management buffer is positive for all banks after the stress means that no bank breaches the capital requirement or its Pillar 2 guidance in the stressed scenario. However, there is considerable uncertainty about how the capital ratios could change in the next few years, as well as in the modelled scenario. The models illustrate only one possible course of events.
FI uses macro stress tests as a tool to assess individual banks' resilience as well as stability in the financial system. Over the past few years, we have developed a number of models and approaches for different components of the banks' earnings, balance sheets and risk-weighted assets. These enable us to assess how the capital ratio could change in severe macroeconomic scenarios.
The method and the assumptions FI uses to perform the stress test are described in more detail in the memorandum.
