Opinion of the European Systemik Risk Board of 09 June 2023 regarding Swedish notification 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 and amending Regulation (EU) No 648/2012 (ESRB/2023/3)

The European Systemic Risk Board (ESRB) has published an opinion that was drawn up by the Board on June 9, 2023 as regards the implementation of stricter national measures of the Swedish supervisory authority Finansinspektionen (FI) in connection with the use of internal models for credit risk assessment.
Specifically, Finansinspektionen had applied for increasing its minimum risk-weight floor requirement to 35% for commercial loans of financial institutions authorized in Sweden, where the loans are secured by commercial property in accordance with Article 458 of the Capital Requirements Regulation (CRR) and to 25% for same loans secured by residential property. 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 measure by the fact that the real estate sector in Sweden is „overheating“ thereby causing price bubbles.
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.