Updated approach to assessing Pillar 2 guidance for Swedish banks

Following a consultation (EventID 20573) on proposed amendments to its current so-called pillar 2 guidance which has been in place since 2020/2021 and which sets out recommendations for supervised institutions as regards additional capital buffer requirements based on their individual risk levels (determined by their stress test results), the Swedish financial market regulator Finansinspektionen (FI) has published a corresponding finalization notice / consultation conclusion paper. In this document – which is available in Swedish only – the regulator outlines the responses it has received on its proposed modifications and stipulates the final revisions as they will be applied from May 31, 2023. A final version of the new guidance is not yet available.
To recall, FI primarily proposed to
– revise the ranges of additional capital buffers required by institutions in the risk-based guidance;
– revise the ranges of additional capital buffers required by institutions in the leverage ratio-based guidance;
– limit the additional capital requirement for either of the two outcomes at 5% and 3%, respectively; and
– no longer ONLY take into account the results of an institution’s stress test, but also to look at additional capital requirements of banks similar in size and risk.
In view of the responses received to its consultation, which were generally speaking highly supportive of the changes, Finansinspektionen is including the new intervals for both the risk-based guidance and the leverage ratio guidance, along with the proposed maximum limit on the extent to which the outcome of the sensitivity-based stress test can influence an institution’s capital requirements. Moreover, FI has made changes throughout the document and minor adjustments to the stress test methodology for clarification purposes.