Sweden's financial services watchdog said on Tuesday that banks would need to hold bigger capital buffers from 2017 and renewed a call for the legal backing for measures to deal with rising risks associated with household debt. The International Monetary Fund, the European Commission and the Sweden's own central bank are increasingly worried that ultra-low interest rates are stoking an already red-hot real-estate market and encouraging households to borrow too much.
In the latest move to insure against a housing crash, the Financial Supervisory Authority's (FSA) said it will hike the amount banks' need to put aside as a buffer for a market downturns to 2 percent from the current 1.5 percent of risk-weighted assets, a move first proposed in February.
"This is a way to increase banks' resilience," said Erik Thedeen, head of the FSA.
Household debt levels in Sweden are among the highest in Europe, in relation to disposable income, and are seen as presenting a risk to financial stability.
The FSA plans to introduce tighter mortgage repayment rules for new borrowers later this year but many - including the central bank - have called for further measures.
Thedeen said first choice would be a debt-to-income cap for mortgage borrowers, but that the FSA did not have the legal power to introduce it and renewed his plea for a broader mandate for the agency.
"We still do not have the tools we need," he told reporters.
Earlier in the day, Riksbank Governor Stefan Ingves said Sweden suffered from a "collective unwillingness or incapacity" to deal with a dysfunctional housing market.
The Riksbank is worried highly leveraged households - the majority with floating mortgage rates - would be in trouble if house prices fell or rates rose sharply, hitting consumption and causing widespread economic problems.
Household lending rose 7.5 percent in January from a year earlier and has been on an upwards path since late 2012.