Macro-based stress test of Swedish banks: results and methodology, autumn 2020

Finansinspektionen (FI) presents in this memorandum a stress test of the Swedish banks that we conducted in the autumn of 2020. The results indicate that the major banks have significant resilience to the credit losses that could arise and also a capacity to maintain the supply of credit.

The memorandum describes the methodology behind the stress test and its outcome. The test illustrates potential effects on the financial position of the major Swedish banks if the current economic crisis were to deepen as a result of an increase in the spread of the coronavirus.

The results indicate that the major banks have significant resilience to the credit losses that could arise and also a capacity to maintain the supply of credit. The average CET1 capital ratio decreases by 2.8 percentage points in the scenario, from 17.6 per cent in Q2 2020 to a low point of 14.8 per cent, if the banks pay out dividends from their profit from 2019–2022 in accordance with their dividend targets. The lowest margin to the current capital requirement is then approximately 1 percentage point. However, like all other similar analyses, there is considerable uncertainty associated with the results.

FI uses macro stress tests as a tool to assess individual banks' resilience as well as stability in the financial system. Over the past few years, we have developed a number of models and approaches for different components of the banks' earnings, balance sheets and risk-weighted assets. These enable us to assess how their capital ratios could be affected in severe macroeconomic scenarios.

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