The spread of the coronavirus disease (COVID-19) is having a financial impact on firms and households around the world. There is considerable uncertainty about how much the disease will impact the global economy. This economic uncertainty also affects the financial system.
FI is maintaining daily contact with the systemically important firms under its supervision and following all developments carefully with the aim of safeguarding the banks and other financial firms’ internal preparedness for managing shocks and understanding how their operations and financial position are being impacted.
FI considers the resilience of the financial system in Sweden to be satisfactory. The banks are profitable and have plenty of capital and liquidity. This strong point of departure means that the conditions are in place for the banks to meet their customers’ needs for financial services even in the event of an economic slow-down. It is important that firms of all sizes, and even households, can rely on a continued supply of loans to maintain production, investments and consumption.
“In uncertain times, there can be a risk that financial actors will become too cautious and take actions that amplify the downward forces. It is therefore of key importance that the Swedish banks now utilise their strong position to take a long-term view and maintain their lending by considering customers’ creditworthiness in the long term. This perspective reflects the idea behind the entire regulatory framework for banks that has emerged since the financial crisis,” says Director General Erik Thedéen.
The banks’ strong capital position is in part due to the countercyclical capital buffer requirement that FI has applied and gradually raised in recent years. The aim of the buffer requirement is to build up the banks’ resilience during periods of strong economic growth and then use the buffer when needed to maintain the banks’ ability to issue loans to firms and households. This counteracts the self-reinforcing contraction that can occur following disruptions to the financial system. If necessary, FI is ready to lower the countercyclical buffer requirement in order to help support the banks’ lending activities and thus the economy.