Finansinspektionen is responsible for macroprudential policy in Sweden, which includes both promoting financial stability and counteracting financial imbalances. We are also tasked with promoting a high level of consumer protection on the financial markets. One of the reasons that we have been given the responsibility for macroprudential policy is that financial crises have proven themselves to be very expensive.
Finansinspektionen has passed a decision to recognise the Finnish supervisory authority’s decision to implement an average, firm-specific risk weight floor of 15 per cent for Finnish mortgage exposures.
FI is proposing changes to Finansinspektionen’s regulations (FFFS 2016:16) regarding amortisation of loans collateralised by residential property. The regulations cover mortgages granted by credit institutions, i.e. banks and credit market companies.
Finansinspektionen (FI) is presenting today its proposal for a stricter amortisation requirement. Following a decision by FI’s Board of Directors, the proposal is now being submitted to the Government for approval.
The financial crisis in 2008-09 demonstrated just how vulnerable the international financial system was and had enormous consequences for the economies in the western hemisphere. Even if traditional stabilisation policy tools, such as monetary and fiscal policy, were able to mitigate the crisis, they did not successfully prevent the build-up of risk that occurred over a long period of time prior to the crisis. The crisis therefore triggered the development of macroprudential policy, which aims to reduce the risk of financial crises and their subsequent effects.” It is with these words that Erik Thedéen began his speech at Finansdagen in Stockholm.
Erik Thedéen visited the Committee on Finance today for a Q&A session. He discussed the unprecedented economic conditions that Sweden is currently experiencing.
The Swedish economy is thriving, but a strong economy combined with low interestrates has resulted in high asset prices and rapidly rising household debt.
Households with high loan-to-income ratios, i.e. large loans in relation to income, are vulnerable. They are sensitive to rising interest rates since their monthly expenses are affected more than households with lower loan-to-income ratios. They are also somewhat more sensitive to a loss of income, for example if they become unemployed.
Finansinspektionen’s report, Stability in the Financial System, shows that the high level of household debt and rising house prices are causing vulnerabilities to build up in the Swedish economy. FI therefore would like to introduce a stricter amortisation requirement for new mortgage holders who take large loans in relation to their income.
This FI Analysis shows that the amortisation requirement has helped households with new mortgages change their behavior. New mortgagors are taking smaller mortgages than what they would have done if FI had not implemented the amortisation requirement. These households are also buying less expensive homes.