Swedish banks form concentrated network, increasing shock propagation risk
A Riksbank Economic Commentary reveals that major Swedish banks form a concentrated, interconnected network, acting as critical intermediaries. This structure, primarily driven by debt exposures like covered bonds, heightens the risk of rapid shock propagation and contagion.
Large banks anchor concentrated network
The Riksbank's Economic Commentary, based on supervisory COREP data, visualizes the interconnectedness of Swedish credit institutions, focusing on domestic exposures.
The analysis reveals a concentrated network where large Swedish banks act as critical intermediaries, channeling exposures across the system.
This interconnectedness is predominantly driven by debt instruments, primarily reflecting banks' holdings of each other's covered bonds.
The study covered 109 Swedish credit institutions from 2021Q2 to 2025Q3, identifying 734 unique bilateral large exposures totaling 674 billion Swedish kronor.
Debt instruments accounted for 564 billion kronor of this total, underscoring their dominant role in shaping interbank linkages.
The combination of high network density and concentrated dependencies significantly increases the risk of rapid shock propagation and contagion within the system.
Mapping dependencies with granular data
The analysis leverages granular COREP (Common Reporting) data on large exposures, defined as exposures exceeding 10 percent of Tier 1 capital, 300 million euros, or ranking among the top ten.
This data covers 109 Swedish credit institutions, including 3 large, 15 medium, and 91 small banks, providing a system-wide perspective on interbank dependencies.
The network exhibits a core-periphery structure, with a relatively sparse 6.4% of all possible bilateral connections realized.
Exposures are concentrated towards larger institutions, with most originating from medium-sized and small credit institutions and directed towards large banks.
Normalizing bilateral exposures by each institution's Tier 1 capital provides a more informative measure of vulnerability, reflecting both concentration and the adequacy of loss-absorbing capital.
Concentration: A double-edged sword
This commentary starkly illustrates a critical vulnerability within the Swedish financial system, where efficiency derived from interconnectedness is offset by heightened systemic risk.
The identified concentration around major banks means that localized shocks could rapidly cascade, posing a significant challenge to financial stability.
While descriptive, this foundational mapping is indispensable for future quantitative risk assessments and the development of targeted macroprudential policies.