Macroprudential policy in Sweden: what has been done and is it enough?
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Erik Thedéen (Director General, Finansinspektionen, Sweden) presentation on FIN-FSA Conference on EU Regulation and Supervision – focusing on household indebtedness and macroprudential stability
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Macroprudential policy in Sweden: what has been done and is it enough?
- 1. Macroprudential policy in Sweden: what has been done and is it enough? Seminar on Macroprudential supervision and household indebtedness Erik Thedéen, Director General Finansinspektionen November 28
- 2. Responsibilities Parliament Government National Debt Office Finans- inspektionen The Riksbank Deposit insurance Resolution Macropru Supervision Secondary legislation Monetary policy Payments system (RIX) Lender of last resort Primary legislation
- 3. Who decides? Parliament/ government Democratic legitimacy Real effects Distributive effects Authority Measurable objective Synergies Speed Flexibility Political temptations Forces Macroprudential policy
- 4. Aggressive real estate price growth Index = 100, 2005 Source: Valueguard and Statistics Finland Note: Dwellings. Swedish series refers to both primary and secondary markets while the Finnish series refers to the secondary market 90,0 160,0 230,0 300,0 Helsinki Stockholm
- 5. High household debt levels Per cent of disposable income Source: Statistics Sweden 2 4 6 8 10 12 14 16 18 80 100 120 140 160 180 200 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 Household debt in relation to disposible income (left axis) Interest payments in relation to disposable income (right axis)
- 6. Share of high LTI households Source: FI Mortgage lending survey 0 2 4 6 8 10 12 14 16 18 All mortgagors New mortgagors
- 7. What have we done? Increase resilience Decrease risks
- 8. Alternatives to LTI-based amortisation Calibrated to reduce new mortgages by 3.72 per cent (Per cent) Source: FI Alternative Limit (%) Affected share Share LTI > 450 LTI-based amortisation 450 14.1 7 Lower LTV-Cap 75.4 (85 today) 38 13 LTI-Cap 492 9.4 14 Capital requirements - Risk weights mortgages 50 (25 today) 100 13 - CCyB 20 (2.5 today) 100 13
- 9. Capital requirements Per cent of risk weighted assets
- 10. Curb systemic riskPer cent Source: Finansinspektionen Note: Loan-to-value (LTV) and Loan-to-(gross)income (LTI). LTV LTI
- 11. Effects Per cent Source: Finansinspektionen. Note: The mortgage bar for the LTV-cap shows the effect on total debt. -8 -7 -6 -5 -4 -3 -2 -1 0 LTV cap Amortisation: LTV- based Amortisation: LTI- based Mortgages Real Estate Prices
- 12. Macropru I 1988 Basel I 2005 Basel II 2011-2018 Basel III/CRD IV Standardized capital requirements Risk-based capital requirements CCB CCyB Liquidity requirements
- 13. Macropru II 1988 Basel I 2005 Basel II 2011-2018 Basel III/CRD IV Standardized capital requirements Risk-based capital requirements CCB CCyB Liquidity requirements Borrower-based measures: LTV & LTI-caps Amortisation requirements Politics: Housing Taxes Unemployment insurance Future?
- 14. Our measures CCyB: Increased to 2.5% in September Systemic Risk Buffer: 3% Capital conservation buffer: 2.5% Additional capital requirements for SII: 2% in Pillar II 25% RW-floor for mortgages O-S II buffer: 2% LCR: 100% as well as 100% in USD and EUR in Pillar II LTV-cap: 85% LTV-based amortisation requirement: 2% p.a. if LTV > 70%, 1% p.a. if LTV >50% LTI-based amortisation requirement: additional 1 p.p. if LT(gross)I > 450%
- 15. Reactions
- 16. Conclusion High household debt levels cause vulnerabilities. Capital requirements increase resilience. Borrower- based measures decrease systemic risk. Next: CRE