The EBA issues Opinion on a measure to address macroprudential risk following a notification by the Swedish Financial Supervisory Authority

The European Banking Authority (EBA) today published an Opinion following the notification by the Swedish Financial Supervisory Authority, Finansinspektionen, of its intention to extend for another two-year period a measure originally introduced in 2018 to ensure that banks remain resilient and can withstand a potentially severe downturn in the housing market without restricting the supply of credit.

The measure entails a credit institution-specific minimum level of 25% for the average risk weight of Swedish housing loans applicable to credit institutions that have adopted the internal ratings-based (IRB) approach to calculate their capital requirements.. The requirement applies on a solo and consolidated level. The measure targets retail exposures secured by real estate, both small and medium-sized (SME) and non-SME exposures. The period of application of the two-year extension will start from 31 December 2023.

In its Opinion, addressed to the Council, the European Commission, and the Swedish Financial Supervisory Authority, the EBA do not object to the extension of the current measure. The EBAtakes note of ongoing concerns regarding systemic risk relating to the housing market and the persistence of macroprudential vulnerabilities in the Swedish financial system. The EBA acknowledges that IRB model estimates are based on the extremely low historical credit losses from Swedish mortgages and partly reflect the absence of a major crisis in Sweden in recent decades. The EBA welcomes the ongoing review of banks’ internal models and invites Finansinspektionen to closely monitor the situation and to stand ready to reassess the appropriateness of the notified measure.