2.2 Bank of Finland participated in the preparation of tools that support financial stability
In 2018, the measures related to financial stability were the preparation of a systemic risk buffer and the development of macroprudential tools and financial regulation.
In early 2018, a systemic risk buffer requirement was incorporated into Finnish legislation to mitigate risks stemming from the structural characteristics of the banking system.
Authorities may impose on credit institutions an additional own funds requirement for mitigating long-term non-cyclical macroprudential or systemic risk in the financial system not covered by the EU's Capital Requirements Regulation and with the potential to have serious negative consequences for the financial system and the real economy in a specific Member State.
The decision on setting a systemic risk buffer and on the size of the buffer is taken by the Board of the Financial Supervisory Authority. The decision must take into account the risk factors that measure the structural vulnerability of the banking system, included in the Credit Institutions Act, as well as the related risk indicators, laid down in the Ministry of Finance Decree.
New capital requirements will enter into force in July 2019
Finland's credit institutions sector is concentrated and, following the transfer of Nordea's domicile, also extremely large relative to the size of the economy. In addition, it is strongly interconnected with the financial systems of the other Nordic countries.
Serious difficulties encountered by credit institutions could weaken financial intermediation significantly and thereby have a considerable negative impact on the real economy. In addition, Finnish credit institutions have risk concentrations in common, such as housing loans and receivables from construction and real estate sector companies.
The Board of the Financial Supervisory Authority decided on 29 June 2018 to impose on all Finnish credit institutions a systemic risk buffer requirement the size of which varies between 1% and 3%. The new capital requirements will enter into force in July 2019.
Bank of Finland provided strong support to the development of macroprudential tools
As part of the preparation of macroprudential decisions, the Bank of Finland delivered in 2018 six opinions on proposals by the Director General of the FIN-FSA for the deployment of macroprudential tools.
In its opinions, the Bank of Finland supported, for example, the decision taken by the FIN-FSA to tighten the maximum loan-to-collateral (LTC) ratio for residential mortgage loans other than first-home loans and to raise the minimum risk weight for residential mortgage loans from 10% to 15%.
The Bank of Finland also supported the decision taken by the FIN-FSA Board not to activate the countercyclical capital buffer requirement.
The Bank of Finland participated in a Ministry of Finance working group assessing measures to curb household indebtedness. The task of the working group is to assess means of mitigating excessive debt accumulation by households and its consequent adverse effects on the real economy. In addition, the working group will prepare legislative proposals for achieving the objectives.
The tools enabled by current legislation should be complemented with income-based tools that would mitigate excessive debt accumulation by households. The term of the working group expires on 3o August 2019.
The Bank of Finland participates in the development of financial regulation
The Bank of Finland has supported, for example, the development of a positive credit register. The register would include comprehensive data on household credit and would provide lenders with an up-to-date picture of the related risks.
The Bank of Finland has also contributed actively to discussions on the development of the Banking Union and Capital Markets Union. The Bank of Finland has emphasised in particular, the importance of completing the Banking Union and one of its pillars, common deposit insurance, to ensure the stability of the banking and financial system.
The Bank of Finland has also participated actively in the development of crisis management capabilities of the financial market authorities. The Bank has cooperated closely with domestic authorities to clarify the allocation of crisis management responsibilities and tasks.
The Bank of Finland has also cooperated with the Eurosystem and the Nordic authorities. The latest Nordic-Baltic Memorandum of Understanding (MoU) was issued in January 2018.