Thedéen: Usable bank buffers, simplified rules, and cautious monetary outlook

Riksbank Governor Erik Thedéen called for banks to be able to use their capital buffers more easily, a key message during a panel discussion on capital requirements.

He welcomed the Riksbank taking over responsibility for the countercyclical capital buffer (CCyB) and intends to keep it at 2 percent.

Thedéen highlighted that banks are often reluctant to deploy buffers during stress, despite their purpose, due to concerns about appearing weak.

He suggested the CCyB's release mechanism could counteract this, also proposing to raise the reciprocity ceiling from 2.5 percent to support Swedish banks' competitiveness.

The Governor also stressed the need to simplify capital adequacy regulations, distinguishing this from deregulation.

He affirmed that the goal is not to undermine banks' capacity to withstand shocks, noting that increased capital post-global financial crisis has allowed banks to mitigate, not amplify, recent crises.

Governor Thedéen addressed the economic situation and monetary policy, highlighting the ongoing war in the Middle East.

He warned that its global economic consequences "could be both extensive and protracted," potentially leading to higher fuel prices and increased CPIF inflation.

Thedéen emphasized that while monetary policy cannot prevent initial energy price surges, it is crucial for counteracting their spread to other sectors.

He cautioned against underestimating supply shocks, noting that increased risks of spillover effects and persistent inflation could necessitate monetary policy tightening.

However, he also advocated for a wait-and-see approach, citing relatively low initial inflation and uncertainty about the war's full inflationary impact.

The Riksbank is "maintaining a steady course, but are ready to swerve if necessary" before its next interest rate decision.