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

International Monetary Fund

No 2023/181, IMF Staff Country Reports from International Monetary Fund

Abstract: This paper presents the technical note on 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. Given the identified vulnerabilities and shortcomings, several adjustments are recommended to improve monitoring, quantification, and mitigation of risks. Price- and quantity-based measures should be deployed 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.

Keywords: risk analysis; liquidity shortfall; liquidity tracking; liquidity profile; liquidity shock; Stress testing; Liquidity stress testing; Mutual funds; Corporate bonds; Liquidity; Global (search for similar items in EconPapers)
Pages: 62
Date: 2023-05-25
New Economics Papers: this item is included in nep-mfd and nep-rmg
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