FI proposes approach to assess Pillar 2 guidance for Swedish banks

FI is presenting a proposal for a general approach to assess the size of the Pillar 2 guidance for Swedish banks. The proposal is based on a two-step approach that starts with a sensitivity-based stress test. Comments on the proposal may be submitted to FI no later than 12 March.

As part of the implementation of the EU's new capital adequacy regulations in Sweden, Finansinspektionen (FI) may establish a so-called Pillar 2 guidance for each bank subject to the CRR.

FI must assess an appropriate level for each bank's own funds in order to, for example, cover risks and manage future stressed situations in addition to the existing coverage from the minimum requirements, the additional own funds requirements, and the combined buffer requirement, or the requirement on a leverage ratio buffer. If FI determines that more capital is needed, this will be communicated to the bank via the Pillar 2 guidance.

Stress test as starting point

FI intends to use a stress test as the starting point to assess how much capital will be communicated to the bank through the guidance. FI may also include other components in the guidance. In this memorandum, we describe the general approach that we intend to apply to assess the Pillar 2 guidance. The proposal extends the information published by FI in November 2020 in its memorandum New capital requirements for Swedish banks.

A two-step approach

The approach uses two steps. First, FI will conduct a sensitivity-based stress test that estimates the potential fall in capital levels at the bank given a number of assumptions and methodology choices. The outcome of the stress test will be rounded off into intervals. Then, second, FI will consider other quantitative and qualitative grounds of assessment. The final Pillar 2 guidance will be determined from an overall assessment of both steps.

Probable outcome

In line with FI's previous communication, the authority makes the assessment that for most banks the guidance will amount to 1.0–1.5 per cent of the risk-weighted assets and 0.2–0.5 per cent of the exposure amount for the leverage ratio.

Proposed entry into force and application

FI intends to apply the new approach starting with the supervision and review evaluation process in 2021. The firms that are affected are those subject to the Credit Institutions and Securities Companies (Special Supervision) Act (2014:968).

Written comments regarding the proposal

Written comments regarding the proposal shall be sent to Finansinspektionen, Box 7821, 103 97 Stockholm, or via email to finansinspektionen@fi.se. FI shall have received the written comments no later than 12 March. Specify the reference number, 20-28036.

Inquiries regarding the consultation may be directed to Pär Holmbäck at par.holmback@fi.se or by calling +46 (0)8 408 989 07.

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