5  For a more detailed description of macroprudential policy, see for instance C. Nordh-Berntsson and J. Molin (2012), “A Swedish framework for macroprudential policy”, Economic Review, no. 1, Sveriges Riksbank, and my colleague Karolina Ekholm’s speech “Macroprudential policy and clear communication contribute to financial stability,” published on 30 March 2012. BIS central bankers’ speeches  3  focus for macroprudential policy is the risks in the financial system as a whole (see Figure 9). The supervision of individual institutions is, of course, also important to the stability of the financial system, not least as financial institutions are regarded as “systemically important”. But to capture the build-up of risks that could threaten the stability of the financial system – what are known as systemic risks – it is not enough to keep an eye on individual institutions. One needs to supplement this with a systemic, or macro, perspective. Macroprudential policy also requires appropriate tools. Let me discuss some of the macroprudential tools that could be useful to specifically manage the risks linked to house prices and household debt.6 Countercyclical capital buffers are one of the most discussed tools, and are a part of the Basel III international regulatory framework.7 The idea is to vary the capital requirements made of the banks; when there is strong credit growth, the requirements will be increased, while they will be reduced during financial stress, when there is otherwise a risk of a credit crunch.
The trend of increasing debt among households, combined with a large share of mortgages at variable rates, may also have meant that households’ sensitivity to fluctuations in house prices and interest rates has increased over time. Several international studies imply that a high level of debt in itself can aggravate the negative effects of a fall in house prices on consumption.2 Since we published the inquiry into the risks in the Swedish housing market, house prices have levelled off, and household debt has increased at a slower rate. It is important to remember that this development is probably partly explained by the monetary policy conducted; for instance, the repo rate was raised in connection with the strong recovery after the financial crisis, and as I mentioned, we have taken into account the risks linked to household debt in our repo-rate decisions over the past year. Another possible reason for the slower developments is the mortgage cap, to which I will return later. As household debt in Sweden is still high, and higher than in many of the countries that have suffered major problems, I still consider the risks to be substantial (see Figure 5). 1  See, for instance, Sveriges Riksbank (2011), The Riksbank’s inquiry into risks in the Swedish housing market. 2  See, for instance, IMF (2012), World Economic Outlook, April, and also R. Glick and K.J. Lancing (2010), “Global Household Leverage, House Prices, and Consumption”, Federal Reserve Bank of San Francisco Economic Letter 1.