Implementation of monetary policy and safeguarding the stability and functioning of the financial system are core central bank tasks. These tasks involve financial risks, for which the Bank of Finland prepares by ensuring the strength of its balance sheet. The Bank of Finland’s capital adequacy is sufficient to cover the risks arising from the performance of its tasks.

In 2018, the Bank of Finland reduced the amount of fixed income investments. Long-term investment assets were increased in accordance with the Bank’s plan. Monetary policy purchase programmes increased the structural interest rate risk on the Bank’s balance sheet. Exchange rate risk maintained its position as the Bank of Finland’s most significant financial risk.

Investment activities and monetary policy implementation involve risks

At the end of 2018, the Bank of Finland’s financial assets amounted to about EUR 11 billion. They consist of gold holdings, foreign reserves, euro-denominated fixed income investments and investments in equity and real estate. The amount of foreign reserves has been set to a level required in order for the Bank of Finland to perform its central banking tasks.

The Bank of Finland reduced euro-denominated fixed-income investments by EUR 3 billion in 2018. Scaling-up of investment in equity and real estate was continued in accordance with the Bank’s long-term investment plan.

The risk relating to claims on monetary policy operations equals, as a rule, each national central bank’s capital key share in the aggregate claims of national central banks. In 2018, the Bank of Finland’s share was 1.785%. The risks relating to government debt instruments purchased under the public sector purchase programme (PSPP) are borne individually by each national central bank involved.

The volume of the Eurosystem’s monetary policy operations grew in 2018 by about EUR 235 billion, reflecting the implementation of the expanded asset purchase programme (APP). The Bank of Finland’s share of claims on monetary policy operations grew by about EUR 4 billion.

Table 3.
Bank of Finland's assets and share of claims
on monetary policy operations
EUR billion
EUR billion
Financial assets 11,553 14,184
Gold 1,767 1,706
Foreign reserves 5,942 5,567
Euro-denominated fixed-income investments 3,011 6,232
Equity investments 727 670
Real estate investments 106 10
Share of claims on monetary policy operations 54,201 50,311
Refinancing operations 13,108 13,642
Targeted longer-term refinancing operations1 12,830 13,438
Other refinancing operations1 277 204
Debt instruments under the expanded asset purchase programme 39,789 35,100
Finnish government bonds and government-related bonds 28,308 25,168
Bonds of supranational institutions1 4,007 3,640
Covered bonds1 4,295 3,944
Corporate bonds1 3,178 2,349
Terminated programmes 1,305 1,569
Securities markets programme1 1,208 1,472
Covered bond purchase programme 97 97
Total 65,754 64,496
1) Capital key share (1.785%) in aggregate claims by national central banks.

At the end of 2018, the Bank of Finland’s total assets amounted to EUR 112 billion. A significant portion of this, EUR 45 billion, consisted of intra-Eurosystem claims (see an article in the

Diversification as a risk management tool

The Bank of Finland’s financial risks comprise market risks, credit risks and liquidity risks. Market risks are, for example, adverse movements in exchange rates, interest rates and stock prices.

Exchange rate risk is the source of the most significant volatility in the value of financial assets. The Bank of Finland diversifies the risk by investing in the pound sterling and the Japanese yen, in addition to the US dollar. Through the Bank of Finland’s receivables from the IMF, exchange rate risk is also diversified into the Chinese yuan.

In taking on interest rate and credit risks, the Bank of Finland is guided by a strategic benchmark index and a highly detailed limits framework. This way the Bank ensures that the investments are highly liquid and are adequately diversified across various asset classes, countries, maturities and issuers. The Bank’s investment focus is on debt securities of high credit ratings.

In accordance with its balance sheet management framework, the Bank of Finland invests part of its own funds in a variety of instruments in the international stock and real estate markets. The investments are made in the form of indirect investments, and they diversify the other risks on the Bank’s balance sheet.

In implementing monetary policy purchase programmes, central banks adhere to the common eligibility criteria and other risk management rules pertaining to the whole Eurosystem.

Responsible, reliable and financially sound counterparties

The Bank of Finland manages its financial assets in a responsible manner. Counterparties accepted in direct fixed-income investments are limited using specific responsibility criteria. Assessments of service providers’ responsibility and reliability are essential also in the Bank’s indirect investment activities.

The Eurosystem conducts monetary policy operations with financially sound counterparties and against adequate collateral.

Estimated total risks slightly up

The Bank of Finland measures total risk exposure on the balance sheet using well-established statistical methods. The risk estimate is supplemented with stress tests which assess losses that could be incurred under possible, but improbable scenarios.

As the total risk estimate, the Bank of Finland uses a loss that would occur in the following year with a probability of 1% (expected shortfall). At the end of 2018, the total risk estimate was EUR 2.1 billion.The total risk estimate does not include gold price risk because the revaluation account for gold covers a significant fall in gold prices. Including gold price risk, the Bank of Finland’s total risk estimate is EUR 2.4 billion.


The risk estimate rose slightly from the previous year due to model calibrations. In 2018, the Bank of Finland began to use distribution assumptions which produce higher forecasts for losses than the ones employed previously in risk calculations.

In estimating credit risk resulting from monetary policy operations, the Bank of Finland uses internal risk reporting produced by the ECB, which is subject to ongoing development by the Eurosystem’s Risk Management Committee.

Balance sheet risk buffers cover the risks

At the end of 2018, the Bank of Finland had revaluation accounts totalling EUR 0.9 billion and provisions totalling EUR 4.0 billion available for losses. The primary capital and reserve fund amounted to EUR 2.7 billion.

The risk buffers strengthened in 2018 as a result of increases in provisions and a rise in the value of foreign reserves. The Bank of Finland’s capital adequacy is sufficient to cover the risks arising from the performance of its tasks.

Non-standard monetary policy operations increased interest rate risk

The Eurosystem’s non-standard monetary policy operations have created a structural interest rate risk on the Bank of Finland’s balance sheet. Liquidity created via the expanded asset purchase programme (APP) and the targeted longer-term refinancing operations (TLTROs) is reflected on the liabilities side of the balance sheet as growth in central bank deposits.

The Eurosystem sets the interest payable on the deposits as a matter of policy. The interest rate decision has an immediate effect on the Bank of Finland’s interest expenses. Claims on monetary policy operations, in turn, mainly carry a fixed interest rate. An increase in the deposit rate therefore weakens the Bank’s net interest income.

The structural interest rate risk position unwinds with the maturity of fixed-rate monetary policy investments. Reinvestment of principal payments from maturing bonds, however, maintains the risk position.

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