Support measures can build up stability risks

The support measures have been important for offsetting the economic impact of the crisis and speeding up the recovery. However, they can also contribute to greater stability risks in the long run, concludes Finansinspektionen (FI) in this year’s first report on the stability in the financial system, which is being published today.

The economic recovery is expected to pick up speed, in part because the reduced spread of the virus and vaccinations are making it possible to slowly phase out restrictions. But the road back to pre-pandemic levels is long; for example, unemployment is still high, writes FI in its stability report.

"Comprehensive support measures have been necessary for offsetting the economic impact of the pandemic and speeding up the recovery. But these measures can also contribute to greater stability risks; for example, low risk premiums encourage excessive risk-taking and rising debt," says FI's Director General Erik Thedéen.

A prolonged period of low interest rates has contributed to some market participants taking on higher risk in their hunt for returns. This risk build-up continued during the pandemic and is evident in the rapidly rising asset prices.

FI notes that vulnerabilities linked to household debt continue to be high. House prices are rising sharply, and household mortgages are increasing faster today than before the crisis. Debt has also increased among non-financial corporations during the crisis at the same time as their revenue has decreased. This makes them more vulnerable.

Therefore, the expansive economic policy needs to gradually return to normal, in particular with regard to measures that potentially increase the risks being taken on the asset markets.

For FI, this means gradually reinforcing the resilience in the financial system. In the near future, we will lift the exemption on the amortisation requirement as planned and begin to raise the countercyclical buffer rate incrementally. FI will also continue its efforts to strengthen the resilience of the corporate bond and fund markets.

"As part of FI's roadmap for strengthening the corporate bond market, the fund management companies need to become better at managing liquidity risks. FI is therefore publishing today a report that identifies liquidity tools that can contribute to a more stable bond market," says FI Director General Erik Thedéen.

Webcast presentation

FI's report Stability in the Financial System will be published at fi.se and is being presented by Director General Erik Thedeén and Chief Economist Henrik Braconier in a live webcast today, Tuesday, 1 June, at 10:00 a.m.

Time and date: Tuesday, 1 June, 10:00 a.m.
Location: Online only at fi.se.

Invitation to Q&A session

After the presentation the media is invited to an online Q&A with Erik Thedéen and Henrik Braconier at 10:30 a.m. The Q&A is only for representatives from the media and will be held via Zoom.

Time and date: Tuesday, 1 June, 10:00 a.m.
Location: To be held only digitally via Zoom.
Registration: To victoria.ericsson@fi.se. A link to the meeting will be sent to registered journalists.

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