Funding crisis management

The management of banks and other institutions in crisis shall be funded by the institutions themselves – in the first instance by their own shareholders and creditors and, in the second instance, through special funding arrangements built up by fees paid by the institutions to the Debt Office.

The management of banks and other institutions in crisis shall, in the first instance, be funded using the failing institution’s internal resources, by means of shareholders and creditors incurring losses and, if necessary, also bearing responsibility for recapitalisation. However, in certain circumstances additional external funding may be required. Even if this funding is obtained from outside the institution in crisis, it is nevertheless the institutions themselves that shall bear responsibility for it. This is achieved through the fees paid by the institutions to the Debt Office and which are gathered in special state-administered funding arrangements. In Sweden, there are three of these:

  • the resolution reserve
  • the deposit insurance fund
  • the stability fund

Resolution reserve

 The resolution reserve can be used to facilitate the implementation of resolution in different ways, for example by temporarily supporting liquidity in institutions that are placed in resolution. It is also possible, in certain circumstances, to use the reserve to cover part of the institution’s losses and any need for recapitalisation. However, this presumes that shareholders and creditors have borne a considerable part of the loss and recapitalisation burden first.

Annual fees

The institutions pay annual fees to the resolution reserve. The fee shall be paid for as long as the balance at the end of the year that the fee concerns is less than 3 per cent of covered deposits (target level). The way in which the fees are distributed among the institutions is regulated by a delegated EU regulation. Larger institutions pay a risk-adjusted fee whereby the fee is proportionate to the institution’s size and risk. Smaller institutions pay a flat-rate fee whereby the fee is determined according to a standardised model based on the size of the institution.

If the reserve balance is not sufficient to fund the actions decided by the Debt Office during resolution, additional funds may be borrowed on behalf of the reserve. In that case, the deficit in the reserve and the loan costs shall be covered by additional fees charged retroactively to the institutions.

Scenarios for when the resolution reserve reaches the target level

Resolution fees are charged until the reserve reaches the target level. The size of the annual fees charged, and the number of years ahead during which a fee will be charged, depend on the progression of covered deposits and the fee basis of the institutions liable to pay fees, and also on the interest payable on the balance in the reserve (based on the Riksbank’s policy rate). Three scenarios for when the reserve reaches the target level are presented below. The scenarios are based on different assumptions about growth in covered deposits and the institutions’ fee basis, although with the same interest rate forecast.* Ahead of a decision on charging a resolution fee, the Debt Office forecasts the balance of the resolution reserve at the end of the current fee year.

Three scenarios for when the reserve reaches the target level
Growth in covered deposits and fee basis Year in which the resolution reserve reaches the target level
3 per cent 2024
4 per cent 2025
5 per cent 2026

* The Riksbank’s forecast for the policy rate (quarterly means), published on 24 November 2022. 

The resolution reserve in figures:

  • In 2023, 131 institutions paid a resolution fee and a total of SEK 4.06 billion was contributed.
  • 59 institutions paid a risk-adjusted fee and accounted for almost the entire amount of the fees charged. The remaining institutions paid a standardised flat-rate fee.

The resolution reserve totalled SEK 61 billion at the end of 2023. This represents approximate 2,7 per cent of total guaranteed deposits.

The deposit insurance fund

The deposit insurance fund is a funding arrangement for the protection afforded to depositors in the event of a bank or institution being declared bankrupt or placed in resolution. 

As with the resolution reserve, all banks and institutions that are members of the deposit insurance scheme pay an annual fee to the Debt Office. The fees are transferred to the deposit insurance fund. If the balance of the fund does not suffice to pay compensation, additional funds are borrowed to cover the needs. Such loans shall be repaid by the subsequent collection of additional fees from institutions.

The deposit insurance fund’s value amounted to SEK 49,5 billion at the end of 2023.

The stability fund

The stability fund was set up in the context of the global financial crisis of 2008 to finance certain support measures for the financial system. The banks and institutions paid annual fees to the fund until 2016, when the stability fee was replaced by the resolution fee. Part of the stability fund’s assets were then also transferred to the resolution reserve. The stability fund is still in place to fund measures within the Debt Office’s role as support authority; that is, its mandate to be capable of providing preventive state support through loan guarantees or capital contributions to viable institutions. The stability fund also constitutes a funding arrangement for measures that the Debt Office can take in its role as the resolution and support authority for central counterparties.

In the same way as for the resolution reserve and the deposit insurance fund, the Debt Office is able to borrow funds on behalf of the stability fund if the balance of the fund is insufficient to fund the decided support measures.  

The stability fund’s value amounted to approximately SEK 41,6 billion at the end of 2023.