Sweden: Financial Sector Assessment Program–Technical Note on Stress Testing of the Financial Sector

IMF Staff Country Reports, May 25, 2023

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Sweden: Financial Sector Assessment Program–Technical Note on Stress Testing of the Financial Sector

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Bibliographic details

• Published: May 25, 2023
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9798400243103.002

Overview and key findings

• The technical note presents risk analysis and stress testing for the Sweden financial sector assessment program.
• Sweden’s financial system "has weathered the coronavirus disease 2019 pandemic well."
• "Tighter monetary conditions will test the financial system."
• "High corporate advantage and household debt create structural and cyclical risks to the financial system."
• Corporate sector and banking system solvency stress tests based on the adverse scenario indicate "pockets of vulnerabilities due to exposure to CREs and low risk weight density of banks."
• The liquidity stress test performed on investment funds "points to significant pressures."

Vulnerabilities identified

• Exposure to CREs (commercial real estate) as a driver of pockets of vulnerability in corporate and banking solvency tests.
• Low risk weight density of banks increases sensitivity in solvency stress tests.
• Investment funds face "significant pressures" under liquidity stress testing.
• Structural and cyclical risks arising from "High corporate advantage and household debt."

Policy recommendations and supervisory actions

• "Several adjustments are recommended to improve monitoring, quantification, and mitigation of risks."
• Deploy price- and quantity-based measures "as a second line of defense."
• Finansinspektionen should:
  • "Provide guidance on liquidity stress tests for the fund industry."
  • "Develop and adapt the stress-testing framework and monitoring tools to conduct market wide liquidity risk analysis."

Subject areas and keywords (as provided)

• Subject: Asset and liability management, Corporate bonds, Financial institutions, Financial sector policy and analysis, International organization, Liquidity, Liquidity stress testing, Monetary policy, Mutual funds, Stress testing
• Keywords: Corporate bonds, Global, Liquidity, liquidity profile, liquidity shock, liquidity shortfall, Liquidity stress testing, liquidity tracking, Mutual funds, risk analysis, Stress testing

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