FI Analysis 27: Non-financial firms and financial stability: a description of vulnerabilities

2021-01-19 | Reports Stability Bank

This FI Analysis describes how vulnerabilities from lending to non-financial firms arise and why FI needs to follow them to fulfil its assignment to safeguard financial stability.

The liabilities of non-financial firms have increased sharply, and for the banks this means that these types of loans constitute a significant portion of their balance sheets. In addition, credit losses associated with corporate lending have often played a prominent role in previous financial crises. The analysis of the risks associated with these loans is therefore an important component in FI's work with financial stability.

It is primarily widespread company bankruptcies and credit losses – or an elevated risk of both – that constitute a threat to financial stability. It is important to analyse vulnerabilities related to widespread credit losses to understand how they arise. The starting point is FI's intermediate goals for financial stability. Among these, there are primarily two goals that are relevant for the analysis of the firms: limiting systemic risks and financial imbalance caused by high debt and limiting systemic risks caused by high exposure concentrations.

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