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

EBA has published an Opinion supporting the extension following a notification from the Swedish Financial Supervisory Authority, FI,(eventid=22925) planning to extend a measure introduced in 2018 to enhance the resilience of banks in the face of potential housing market downturns. The measure stipulates a credit institution-specific minimum risk weight of 25% for Swedish housing loans, specifically those secured by real estate.
EBA does not object to the extension and recognizes the persistent concerns regarding systemic risk in the Swedish housing market and ongoing macroprudential vulnerabilities in the country’s financial system. The measure is designed to ensure that banks remain robust and capable of withstanding a severe downturn in the housing market without hindering the supply of credit. It applies to credit institutions using the IRB approach for calculating capital requirements, both on an individual and consolidated level.
EBA acknowledges that the risk weight floor measure has been in place since 2014, with the current form established in 2018. Despite changes in the housing market and the macroeconomic environment, the calibration of the measure has remained unchanged, with the risk weight floor set at 25%. EBA emphasizes the importance of avoiding overlaps with other requirements, particularly the Pillar 2 Guidance, which is determined based on stress test outcomes.
While supporting the extension, EBA raises awareness of the need for an ongoing review, especially considering the historical basis of internal model estimates and the absence of a major crisis in Sweden in recent decades. EBA encourages FI to closely monitor the situation and be prepared to reassess the appropriateness of the measure. Additionally, with potential changes in regulations, such as the introduction of the output floor following the proposed CRR3, EBA suggests a periodic comprehensive reassessment of the existing macroprudential measures.