Stability in the Financial System (2021:1)

The economy is continuing to recover. Support measures have been necessary to speed up the recovery, but they need to be gradually phased out as the economy strengthens. This applies primarily to measures that are associated with the build-up of stability risks.

The economic recovery is expected to pick up speed, in part due to vaccinations and the subsequent phase-out of restrictions. But the economic downturn was sharp, and it is still a long road back to pre-pandemic levels, for example, unemployment is still high.

Comprehensive support measures have been necessary to offset the economic impact of the crisis and speed up the recovery, but some of these measures can also increase stability risks, in part through greater risk-taking and rising debt. Therefore, as the economy recovers, the expansive economic policy needs to gradually return to normal. This should primarily occur by removing the measures that put direct pressure on risk premiums and thus create incentives for some market participants to take on more risk. However, fiscal policy measures that target sectors hit hard by the crisis should not be withdrawn too early since this could slow the economic recovery.

Finansinspektionen (FI) will gradually shift its focus to reinforcing resilience in the financial system to prepare for future crises. In the immediate future, this means that we will lift the exemption on the amortisation requirement and gradually increase the countercyclical capital buffer, with the intention to start the latter in the second half of 2021. FI will also continue its efforts to strengthen the resilience of the corporate bond and fund market. For example, the fund management companies need to become better at managing liquidity risks. FI is therefore publishing a report today that identifies liquidity tools that can contribute to a more stable bond market.

FI's position on the banks' dividends that was communicated in a press release in December 2020 still stands. Given that the economic recovery continues and the banks can maintain the credit supply, FI does not intend to renew the current recommendation that limits banks dividends and is in force until September. In accordance with current practice, FI's official position will be coordinated with the corresponding assessments that will be made by the European Systemic Risk Board (ESRB) and the European Banking Authority (EBA).

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