IMF Executive Board Concludes 2020 Financial System Stability Assessment with Norway
IMF News, August 12, 2020
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Bibliographic details
- Published: August 12, 2020
Overview
- Press Release No. 20/280
- Date: August 12, 2020
- The Executive Board of the International Monetary Fund (IMF) concluded the Financial System Stability Assessment with Norway on July 22, 2020 without a meeting.
- Much of the work of the Financial Sector Assessment Program (FSAP) was conducted prior to the COVID-19 pandemic, with the missions concluding on February 13, 2020.
- The report was updated to reflect key developments and policy changes since the mission work was completed and includes a risk analysis that quantifies the possible impact of the COVID-19 crisis on bank solvency.
Major findings on financial sector developments since 2015
- Norwegian authorities have taken steps to strengthen the financial system since the previous FSAP in 2015:
- Regulatory capital requirements for banks were raised.
- Actions were taken to bolster the weak capital position of insurers.
- Temporary borrower-based measures for residential mortgages were introduced and "seem to have had some moderating impact on segments of the housing market."
- The resolution framework was strengthened with the implementation of the Bank Recovery and Resolution Directive (BRRD) and the designation of Finanstilsynet (FSA) as the resolution authority.
Stress test results and risk analysis
- Solvency stress tests:
- Indicate that while the COVID-19 shock is expected to have a significant impact on capital ratios, "all banks in the test would continue to meet conservative hurdle rates of around 10 percent."
- Liquidity stress tests:
- Suggest short-term resilience, but potential for tensions over longer horizons.
- Climate-related transition risk:
- A novel assessment suggests that sharp increases in carbon prices would have a significant but manageable impact on banks’ loan losses.
- Uncertainty:
- Given the unprecedented nature of the pandemic, the findings are subject to uncertainty and downside risks.
Authorities’ response to COVID-19
- Norwegian authorities eased macroprudential policies and took measures to support bank liquidity in response to the COVID-19 crisis, which has helped mitigate its impact.
Institutional strengths and areas for improvement
- Strengths:
- Financial sector oversight is well-developed.
- Norway’s cybersecurity risk mitigation framework is advanced.
- Areas for improvement and recommendations:
- Strengthen the macroprudential policy framework by defining a policy strategy and further improving interagency coordination.
- Increase the operational independence of the supervisory authority.
- Strengthen the risk focus of supervisory activities, including greater scrutiny of smaller banks and foreign branches.
- Guard against a weakening of capital requirements arising from the implementation of European regulatory framework.
- Strengthen the oversight of banks’ liquidity and funding risks and close data gaps.
- Address remaining weaknesses in the effectiveness of AML/CFT supervision.
- Intensify cybersecurity risk oversight of payment systems.
IMF Communications Department, Press Release No. 20/280, August 12, 2020.
