FI notifies the EU regarding extension of the existing risk weight floor for Swedish Mortgages

2021-09-20 | ESRB Mortgage Memos & decisions Stability Capital requirements Bank

Finansinspektionen has notified the Commission and the European Systemic Risk Board (ESRB) that it intends to adopt a decision to extend the current risk weight floor for Swedish Mortgages for a period of two years, in accordance with Article 458 of the CRR.

Finansinspektionen decided to apply the risk weight floor of 25 per cent for Swedish mortgages via Article 458 of the CRR in August 2018 and the measure entered into force on 31 December 2018 for a period of two years. In November 2020 Finansinspektionen decided to prolong the risk weight floor for one year. That period is now coming to an end and Finansinspektionen has assessed that the underlying risks necessitating the risk weight floor remain to the extent that the measure continues to be necessary.

The Swedish banking sector remains highly exposed to the residential real estate market and due to a long period of low loss levels, there is a risk that the models used by banks that have adopted the Internal Ratings-Based approach (IRB) may not provide sufficient capital to weather a potential crisis situation. This measure ensures that sufficient capital is present in the system to ensure banks are fully resilient and can withstand a potentially severe downturn without restricting the supply of credit. This should help minimise the risk of spillover effects that could exacerbate the downturn.