A stable, well-functioning financial market for allA stable, well-functioning financial market for allStability in the Financial System (2019:1)
Both the global and the Swedish economies appear to be slowing down. Low interest rates – which have resulted in high risk-taking and rising asset prices – are expected to remain low for a prolonged period of time. Resilience in the Swedish financial system is satisfactory in general. However, even if the banks’ resilience is satisfactory overall, FI makes the assessment that they need more capital to cover the risks in their lending to commercial real estate firms.
The prolonged period of low interest rates has led to higher risk-taking among various market participants. This has contributed to the increase in lending among households and firms and the increase in the prices of houses, commercial real estate, shares and other assets. If the willingness to take on risk were to fall sharply, this could cause large price reductions on the markets. This could ultimately have a negative impact on financial stability in Sweden.
The financial markets in Sweden are currently functioning well. FI also makes the assessment that the resilience of the Swedish insurance firms is satisfactory. But life insurance firms hold large shareholdings. Even if these firms' resilience is satisfactory, they could impact other investors if they are forced to sell large posts of shares during periods of elevated financial uncertainty.
FI makes the assessment that the resilience of the major Swedish banks is satisfactory in general and that their capital and liquidity buffers are sufficient for withstanding a scenario that includes a sharp deterioration in the market conditions. The major Swedish banks also have good profitability, which has been amplified by a long period of high economic growth. However, a large portion of their lending is to the commercial real estate sector, a sector that FI considers to be vulnerable. In a scenario with severe financial stress, problems in the commercial real estate sector could cause significant credit losses for the Swedish banks. FI's analysis indicates that the capital held by the banks for risks in their lending for commercial real estate would not cover the losses that may occur under stress. Even if the banks' total capital and resilience are satisfactory, FI believes that more capital is needed for their lending to commercial real estate firms.
