SWEDEN Law and Practice Contributed by: Richard Engblom, Per Josephson, Anna Cumzelius and Amin Bell, Harvest Advokatbyrå
process (SREP) for the bank’s governance struc - tures, processes and procedures related to its ICAAP and assesses the bank’s risks and capital needs. After an SREP, the SFSA decides on an additional own funds requirement and provides guidance on additional own funds. The bank’s and the SFSA’s risk and capital assessments are both parts of the Pillar 2 framework. Combined buffer requirement Requirements for maintaining different types of capital buffers are set out in the Capital Buff - ers Act (2014:966). A bank may use the buff - ers, although only in specific circumstances and subject to restrictions. Capital conservation buffer Banks must hold a 2.5% capital conservation buffer in addition to the minimum own funds requirements and the additional own funds requirements. The buffer is an additional layer of capital that the bank should be able to use to cover losses without breaching the minimum capital requirements and additional capital requirements. Capital buffer for systemically important banks The SFSA evaluates annually which of the Swedish banks are systemically important and which must hold a buffer designed to provide extra protection to mitigate negative effects that problems in the bank could cause in the financial system. Systemically important banks must hold an institution-specific capital buffer of 1%. Systemic risk buffer This buffer must protect against systemic risks that are not covered by other capital require - ments. Every other year the SFSA reviews the systemic risk buffer and which banks are subject
to it. Banks subject to the requirement must hold a systemic risk buffer of 3%. Countercyclical capital buffer During periods of strong economic growth and high credit growth, banks should build up capi - tal buffers that they can then draw upon during periods of financial uncertainty. The objective of the countercyclical capital buffer is to enhance the banks’ resilience and prevent future financial crises. The SFSA sets the countercyclical capital buffer quarterly based on the current economic conditions. Liquidity Requirements Since 1 January 2018, binding EU regulations apply in full (CRR and the liquidity coverage requirement regulation (EU) 61/2015 (LCR)). These set out the following requirements: Quantitative requirement for liquidity coverage (Pillar 1) The EU regulation imposes a 100% Liquidity Coverage Ratio (LCR) requirement, meaning that an institution must have a sufficient amount of liquid assets to withstand actual and simulated cash outflows during a stressed period of 30 days. The Pillar 1 requirement in EU regulation is not expressed in individual currency levels, but the regulation imposes a general requirement that the currency composition of the liquidity buffer should align with the net outflows per currency. If there is an imbalance between the currency composition of the liquidity buffer and the net outflows in individual currencies, the supervisory authority may require a bank to limit the imbal - ance by setting limits on the proportion of liquid assets in one currency that a bank can count towards covering liquidity outflows in another currency.
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