Banks' resilience increasing
Link to the whole Financial Stability Report (pdf)
Bank profitability is increasing again after a period of stagnant results. The Riksbank's assessment in the Financial Stability Report published today is therefore that the banks' ability to cope with unexpected losses has increased. Given the economic upturn that the Riksbank foresees, there are no indications that exposures to borrowers will exert substantial future strains on the banks. The household consumption propensity has recently been an important growth factor and is also one of the prerequisites for a future increase in corporate investment and profits. If further signs that a recovery is on the way fail to materialise, so that households become less optimistic, there would be a risk of borrowers becoming less able to pay, and the banks' ability to cope with unexpected losses would deteriorate.
The Financial Stability Report concludes with two articles. The first article - The Riksbank's role as lender of last resort - contains a discussion of the principles for how the Riksbank should act in this role. To safeguard the stability of the financial system, the Riksbank has the opportunity to grant credit or give guarantees to financial institutions that are unable to obtain means of payment in other ways. There is a need to discuss the principles regarding which situations and which conditions shall apply to emergency liquidity assistance. Clear guidelines can reduce the risk of a central bank intervening unnecessarily. They also reduce the probability of an institution taking greater risks than usual in the belief that it will not need to take the consequences.
The second article - Financial integration and responsibility for financial system stability in the EU - discusses the challenges facing regulation, prudential supervision, oversight and crisis management in view of the increasing cross-border integration of banking systems. The challenges are complex and awkward to manage, and it is difficult to provide any simple solutions. What is probably required is a combination of increased cooperation between national authorities and greater supranationalism to ensure that this integration does not adversely affect financial system stability. It is important that a discussion is begun within the EU before integration has progressed to the stage where the need for solutions becomes acute.
A press meeting with Deputy Governor Lars Nyberg and Martin Andersson, Head of the Financial Stability Department, will be held at 1 p.m. today in the Riksbank, entrance from Brunkebergstorg 11. Press cards must be shown.
The Report can be downloaded from the Riksbank's website, under the headings Publications/ Financial Stability Report, or ordered via e-mail, forradet@riskbank.se; fax, +46 8 787 05 26; or tel., +46 8 787 00 00. It can also be collected from the Riksbank entrance, Brunkebergstorg 11.
