Opinion of the European Systemic Risk Board of 10 October 2023 on the Swedish notification of the extended application of a stricter national measure based on Article 458 of Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions (ESRB/2023/10)

The European Systemic Risk Board (ESRB) has published an opinion that was drawn up by the Board on October 10, 2023 as regards the continued application of stricter national measures of the Swedish supervisory authority Finansinspektionen (FI) in connection with the use of internal models for credit risk assessment for certain credit exposures.
Specifically, Finansinspektionen had applied for extending its minimum risk-weight floor requirement of 25% for retail loans of financial institutions authorized in Sweden, where the loans are secured by „immovable“ property in accordance with Article 458 of the Capital Requirements Regulation (CRR). The measure only applies to institutions using an Internal Ratings Based (IRB) approach towards the assessment of credit risk and thus the determination of own fund requirements. Finansinspektionen justified its plans with continuing vulnerabilities in the real estate sector in Sweden which stem from relatively high real estate prices and increasing household indebtedness.
Having reviewed the facts, the ESRB now found the measure to be „justified, suitable, proportionate, effective and efficient“ for the following reasons:
– the measure is necessary for the prevention of macroprudential or systemic risk;
– the measure better achieves the goal of risk prevention than any other tools that are available to Finansinspektionen; and
– the measure is proportionate, affects only one member state, and does not appear to have adverse effects upon other member states.