Stefan Ingves, the governor of Riksbank, Sweden’s central bank, said on Wednesday that regulators should consider a plan to increase mortgage asset risk weights above 15 percent to protect the financial industry from potential losses.
Ingves said that “several areas” of Sweden’s financial system “require further examination,” including banks’ ability to meet short-term liquidity needs, Businessweek reports.
Last year, Swedish regulators proposed tripling risk weights on mortgage assets as part of an effort to eliminate imbalances in the housing market. Property prices in Sweden are still rising, despite efforts to slow borrowing, and the nation’s central bank estimates that household debt will hit an all-time high of 173 percent of income by the end of the year.
“The Riksbank supports the proposal for a risk-weight floor of 15 percent—we also believe that there are good reasons for analyzing whether this floor needs to be raised even further,” Ingves, who is also the chairman of the Basel Committee on Banking Supervision, said, according to Businessweek. “One important reason is that the public sector and non-financial companies would have to bear a large part of the risk if the debt-servicing ability of the households were to weaken. Banks’ risk weights are very low.”
If risk weights were increased to 15 percent, Sweden’s three largest banks would be required to set aside an additional $3.1 billion in capital, Swedbank would have to set aside an additional $1.1 billion, and Svenska Handelsbanken would be required to set aside an additional $850 million.