EBA issues Opinion on measures to address macroprudential risk following notification by the Swedish Financial Supervisory Authority (Finansinspektionen)

The European Banking Authority (EBA) today published an Opinion following the notification by the Swedish Financial Supervisory Authority, Finansinspektionen, of its intention to introduce a new measure in accordance with Article 458 of Regulation (EU) No 575/2013. The measure introduces risk weights for targeting asset bubbles in the residential property and commercial immovable property sector in Sweden. Based on the evidence submitted, the EBA does not object to the implementation of the proposed measure.

With the application of this measure, the Swedish Financial Supervisory Authority introduces a risk weight floor of 35% for certain corporate exposures secured by commercial properties and a risk weight floor of 25% for certain corporate exposures secured by residential properties. The requirement is applicable to credit institutions that use the Internal Ratings Based (IRB) approach for calculating regulatory capital requirements. The proposed measure tackles the elevated systemic risks connected to the real estate sector in Sweden targeting corporate exposures securedby commercial real estate or residential properties generating rental income.

In its Opinion, addressed to the Council, the European Commission, and the Swedish Financial Supervisory Authority, the EBA acknowledged the concerns of Finansinspektionen over financial stability risks stemming from commercial real estate (CRE). The EBA recognises that CRE activity levels in the Swedish economy have increased substantially in the last years, imposing a risk on financial stability. CRE firms show high level of indebtedness, and despite having diversified their funding structure, banks remain substantially exposed to a downturn risk in the CRE sector. Amid the changing macroeconomic environment, with increasing interest rates and strong inflation, risks emerge on CRE borrowers’ debt servicing capacity. A sector specific crisis in the CRE could trigger large rippling effects throughout the economy and the financial system and provoke procyclical behaviours from banks and other stakeholders.

Legal basis

On 12 May 2023, the European Banking Authority (EBA) received a notification from the European Systemic Risk Board (ESRB) on the intention of the Swedish Financial Supervisory Authority to introduce a new measure in accordance with Article 458 of Regulation (EU) No 575/2013 of the European Parliament and of the Council (Capital Requirements Regulation, CRR)[1].  In accordance with the second subparagraph of Article 458(4) of the CRR, within one month of receiving notification from the designated or competent authority entrusted with the national application of Article 458 of the CRR, the EBA is required to provide its opinion on the points referred to in Article 458(2) of the CRR to the Council, the European Commission and the Member State concerned.