Financial Stability Report 2026:1

The war in the Middle East has increased uncertainty. Several commodity prices have risen sharply and developments in financial markets have at times been vola-tile. Nevertheless, key funding markets have functioned well, and market participants have been able to manage higher margin calls resulting from the increased volatility. However, the longer the war continues, the greater the risk of a scenario in which inflation and interest rates rise while the economy weakens. Market sentiment could then deteriorate rapidly, leading to higher risk premiums and poorer functionality on the financial markets as a result. Several adverse events could also occur simultaneously, especially as there are vulnerabilities in the global financial system that can reinforce one another.

Global vulnerabilities can exacerbate negative developments. Several large economies have high public debt that continues to grow, which limits the ability to use fiscal policy to counter an economic downturn. The problems may be worsened by the growing non-banking sector, where some agents, such as hedge funds, are taking large risks. This can contribute to increased turbulence and impair the functioning of financial markets. In addition, valuations of a few large technology companies are high, and global private credit funds have been forced into writedowns and faced increased redemption requests. In addition, cyber threats continue to increase, and new AI models have raised concerns due to their ability to find vulnerabilities in critical software.

In Sweden, households and property companies could face pressure if the economy deteriorates and interest rates rise. Although credit growth remains subdued, the structural risks associated with the indebtedness of these sectors persist. In a more negative situation, highly indebted households may need to reduce their consumption, which would amplify a downturn. Property companies, already challenged by a weak rental market, risk finding themselves in a situation where they need to take measures to be able to refinance maturing debt and improve their key ratios. Longer interest-rate fixation periods and debt maturities would strengthen the resilience of property companies. It is also important that the Government and the Riksdag (the Swedish parliament) introduce an incomebased tool, such as a debt-to-income limit, to prevent household debt from once again developing in a direction that is not sustainable in the long term.

The major banks are well placed to cope with a worse situation. They are profitable, meet their capital and liquidity requirements by a wide margin, and their direct exposures to the Middle East are limited. However, geopolitical uncertainty is contributing to the rise of cyber threats. Banks and other key financial participants therefore need to urgently strengthen their operational preparedness. It is central to both the functioning of the money market and the Riksbank’s implementation of monetary policy that the monetary policy counterparties have an active liquidity management, as well as the operational capacity and willingness to borrow from the Riksbank when necessary.