Financial Stability November 2008 Financial Stability 2008 2

Financial Stability November 2008

Financial Stability 2008: 2 n The Swedish financial system has been tangibly affected by the global financial crisis n Authority measures are now a precondition for satisfactory stability in Sweden n Prevailing risks have increased

Profit before loan losses and loan losses (net) in the major banks Summed up over four quarters, SEK billion, fixed prices, 2008 -09 -30 Chart 3: 1 Sources: Bank reports and the Riksbank

Stability assessment The resilience of the Swedish banks is good n Global lack of confidence and liquidity n Measures from Swedish authorities a precondition for satisfactory stability in Sweden n

Prevailing risks have increased é Risks on the financial markets é Effects of weaker development of the real economy é Developments in the Baltic countries

Difference between interbank rate and expected policy rate Basis points Note. In Sweden the spread is represented by the difference between 3 month Stibor and overnight index swap (STINA) rate Chart 1. 2 Source: Bloomberg

Premiums in CDS for a selection of banks basis points Chart 1. 12 Source: Bloomberg

Prevailing risks have increased é Risks on the financial markets é Effects of weaker development of the real economy é Developments in the Baltic countries

Effects of weaker economic development n Economic prospects may decline even more n n n banks affected by fall in earnings and weaker ability of borrowers to pay if the banks further tighten the provision of credit or due to other factors (really difficult to assess the effects of the financial crisis on the real economy). Weaker prospects may lead the banks to be even more cautious in provision of credit n This in turn may further weaken prospects n Negative spiral of declining economic activity and reduced credit supply n

Difference between interbank rate and expected policy rate Basis points Note. In Sweden the spread is represented by the difference between 3 month Stibor and overnight index swap (STINA) rate Chart 1. 2 Source: Bloomberg

Premiums in CDS index basis points Chart 1. 11 Source: Reuters Ecowin & Bloomberg

Prevailing risks have increased é Risks on the financial markets é Effects of weaker development of the real economy é Developments in the Baltic countries

Swedish banks in the Baltic countries September 2008 Market share lending Baltic countries’ share of lending and operating profit Lending SEB 12 % Swedbank 16 % Nordea 3% Operating profit, latest four-quarter period SEB 20 % Swedbank 27 % Nordea 2%

GDP growth Annual percentage change Chart 2: 34 Source: Reuters Ecowin

Corporate borrowing in the Baltic countries Annual percentage change Chart 2: 41 Sources: Reuters Ecowin and national central banks

The stress tests show… n Buffers sufficient to cope with n n n This report also contains a test entailing a more extensive crisis scenario n n a negative development in the Baltic countries a dramatic economic decline Scenario in line with crisis of 1990 s Negative development in Baltic countries Negative development in global economy But, in the current situation with ineffective financial markets globally, the effects would be serious

Financial Stability 2008: 2 n The Swedish financial system has been tangibly affected by the global financial crisis n Authority measures are now a precondition for satisfactory stability in Sweden n Prevailing risks have increased

Article n From local to global – today's crisis in the light of yesterday's n Highlights differences and similarities between the ongoing crisis and the Swedish bank crisis in the early 1990 s