The War in the Middle East Poses Risks to Financial Stability

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Press Release
The war in the Middle East has created turbulence in financial markets, but the global financial system has functioned well. Uncertainty remains high, however. The longer the war continues, the greater the risk that inflation and interest rates will rise simultaneously while the economic outlook deteriorates, which could negatively affect several financial markets and participants. Furthermore, there are several global vulnerabilities that could reinforce each other and exacerbate such a negative development. Sweden has a good starting position, but there are structural risks in the banking system, for example linked to banks' international dependencies and significant exposures to the commercial real estate sector.

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Published

2026-05-29

The financial system has functioned well, but uncertainty is high

Uncertainty abroad has been elevated for some time and has increased further as a result of the war in the Middle East. Despite occasional significant turbulence in financial markets, the global financial system has functioned well during the spring. Uncertainty remains high, however, and the longer the war drags on, the greater the risk of higher inflation and interest rates combined with a weaker economic outlook. In such a scenario, market sentiment could deteriorate rapidly, resulting in higher risk premiums and reduced functionality in financial markets.

This is compounded by several global vulnerabilities that could worsen the development, such as high and growing public debt in several major economies, the expanding non-bank sector, and high asset valuations. Additionally, cyber threats are increasing alongside geopolitical tensions and rapid AI development, placing higher demands on financial actors' preparedness and risk management. If several of these negative developments were to occur simultaneously, it could have serious consequences for global financial stability, with spillover effects to Sweden.

Good starting position for the Swedish financial system, but risks remain

Stress on global financial markets can quickly affect participants in the Swedish financial system. So far, however, they have handled the challenges well, not least because banks have had good access to funding and liquidity in all currencies. Lending remains subdued, but structural risks linked to, for example, the indebtedness of real estate companies persist.

Real estate companies still have high debt levels and now face even shorter interest and capital fixation periods. They are also challenged by a weak rental market, and in a worse scenario, they risk needing to take measures to refinance maturing loans and improve their financial position. Longer interest and capital fixation periods would therefore strengthen the resilience of the real estate sector.

The household debt ratio has decreased in recent years but remains relatively high, while households have short interest fixation periods. In a scenario where inflation and interest rates rise, households risk having to reduce their consumption, which would exacerbate an economic downturn. It is important that the government and the Riksdag introduce a new income-based tool, such as a debt-to-income cap, to prevent household debt from again developing in a direction that is not long-term sustainable.

Unchanged countercyclical buffer rate of 2 percent

Households and businesses continue to have good access to financing, while lending is increasing at a moderate pace. The combined indebtedness of households and businesses relative to GDP and income also decreased slightly towards the end of 2025. Overall, this indicates that the buildup of cyclical systemic risks is limited, while Swedish banks have good resilience and room to maneuver to handle various disruptions. The Riksbank is therefore leaving the countercyclical buffer rate unchanged at its positive neutral level of 2 percent.

A press conference with Riksbank Governor Erik Thedéen and Olof Sandstedt, head of the Financial Stability Department, will be held today at 11:00 at the Riksbank. Press accreditation or equivalent is required to attend. Mandatory registration with press secretary Susanne Meyer, susanne.meyer@riksbank.se, by 10:00 today. The press conference will be broadcast live on riksbank.se.

Contact:
Press Office 08-787 02 00

Updated 2026-05-29