FSA: Risk-taking high in Sweden's financial sector, banks need large capital

Risk-taking continues to be high in Sweden's financial markets, and banks will continue needing to hold large capital buffers, considering the increased vulnerabilities in the commercial real estate sector, the Swedish Financial Supervisory Authority said.

Amid low interest rates, investors are taking on more risk to gain a return, according to a Nov. 23 report by the regulator.

The regulator also assessed that high debt levels are making households and firms more vulnerable and sensitive to disruptions than before the COVID-19 pandemic.

The inflow of deposits, which increased sharply during the pandemic, will probably taper off as the economy normalizes and monetary policy support purchases decrease. Hence, overall, the banks' funding is considered to be unchanged and stable. The supervisory body said it will conduct stress tests on liquidity.

Considering the increasing risks and vulnerabilities linked to cyberattacks, the Financial Supervisory Authority and the country's central bank have started a project to develop a cyber strategy for the financial sector.

"It is now important to once again build up resilience in the financial system," the report said, adding that the regulator therefore decided to withdraw the general possibility of exemption from the amortization requirement since August-end and to reactivate the countercyclical capital buffer.