An Antidote for Securitization? How Covered Bonds Fuel Household Indebtedness in Sweden’s Financialized Growth Model

By Viktor Skyrman

PKES Working Paper 2314

November 2023

This article advances the analysis on how the covered bond, a financial instrument specialized for mortgage lending, contributes to household financialization. By providing financial systems with relatively safe debt instruments and letting banks to efficaciously draw credit on international debt markets, ‘…covered bonds allow banks to lend not only more, but also more safely’ (European Commission, 2018). Zooming in on Sweden, one of Europe’s most financialized economies, the article explores why and how covered bonds were institutionalized and how the instrument has affected mortgage lending, securitization and Sweden’s overall financial system. The covered bond concept was imported by Swedish lobbyists via a European banking forum in the late 1980s. While covered bond legislation were temporarily vetoed by central bankers, instead preferring an advanced securitization industry to develop, lengthy bank lobbying and overall developments in Europe’s political economy convinced policymakers that covered bond legislation was essential to avoid deteriorating financial market competition vis-à-vis other EU member states. All in all, covered bonds have on the one hand halted securitization to develop in Sweden. Meanwhile, by increasing the credit supply, covered bonds have on the other hand proved to be an efficient instrument for household financialization.

Keywords: household financialization, European financial integration, banking, debt finance, regulation, covered bonds, securitization

JEL classification: E02 G18 G23 O52