Financial stability
The Bank of Finland maintains financial stability in Finland. It assesses risks to the financial system, compiles financial statistics and participates in the framing of macroprudential policy. Macroprudential policy instruments are used for preventing financial crises and strengthening the resilience of the financial system.
Financial stability is a prerequisite for a stable society. Efficient financial intermediation supports sustainable growth, employment and wellbeing in the long term.
The Bank of Finland participates in maintaining the reliability and efficiency of the Finnish financial system. It identifies and assesses risks that, if they were to materialise, could threaten the stability of the financial system.
The stability threats identified in the Finnish financial system are high household indebtedness and structural vulnerabilities in the banking sector.
Financial stability risks can be mitigated by addressing the problems in time through macroprudential policy measures.
Of the macroprudential instruments applied in Finland, some address credit institutions’ capital positions and some residential mortgage lending.
The Bank of Finland has a key role in maintaining financial stability
In Finland, decisions on macroprudential measures are taken by the Board of the Financial Supervisory Authority. The purpose is to strengthen credit institutions’ and households’ financial buffers against risk.
The Bank of Finland participates actively in macroprudential policy preparations, impact assessments and the development of macroprudential tools.
The Bank also cooperates closely with other financial stability authorities and institutions, both domestically and internationally.
The Bank of Finland is responsible for key financial market statistics. Reliable statistics afford a detailed and up-to-date overview of the operation of the financial system.
Companies’ ability to cope with the COVID-19 pandemic is important for financial stability
In 2020, the COVID-19 pandemic pushed the global and Finnish economy into a crisis.
The Finnish banking sector faced the pandemic with much stronger capital buffers than the financial crisis over ten years ago.
One of the largest threats to banks is the increase in credit losses as businesses face liquidity problems. At the same time, businesses need loans to cope with the temporary loss of income.
The Bank of Finland thus focused in 2020 on monitoring lending to companies and on the modelling and forecasting of banks’ future credit losses.
Statistical compilation and analysis that address information needs are the cornerstones of financial stability
The COVID-19 pandemic created in 2020 a specific need for rapid and reliable statistical reporting and analysis. The Bank of Finland's statistics function responded to this need rapidly and extensively.
The importance of digital services was highlighted in 2020, as they enabled financial intermediation during the exceptional times.
The increasing role of entities other than credit institutions created the need for analysing non-banks. The monitoring of new business models is important for safeguarding financial stability.
The Bank of Finland prepared a new data collection on financial intermediation by entities other than credit institutions (i.e. other financial intermediaries, OFIs). The scope of the extended statistical data collection that will commence in 2021 will cover finance companies and entities providing consumer credit, among others.
In 2020, the Bank of Finland continued to participate actively in the preparation of European legislation, i.e. in the definition of new requirements for payment statistics. We were actively involved in developing the statistics related to the regulation.
The Eurosystem's largest ongoing statistics project in recent years is the establishment of a common granular analytical credit database.
Once the database is completed, the Bank of Finland will be able to provide even more detailed and up-to-date analysis based on new information.
The Bank of Finland analysed financial stability risks caused by climate change
Climate change causes two types of stability risks for the financial sector.
Physical risk refers to material damage caused by climate change and extreme weather events. Transition risk refers to the decline of asset value in carbon-intensive sectors in connection with transition to a low-carbon economy.
In 2020, the Bank of Finland developed the analysis of climate risks, examined the data deficiencies related to climate change statistics and sought to resolve these problems.
The Bank of Finland is a member of the NGFS climate network. In summer 2020, the network published climate scenario models that enable assessment of the impacts of various climate measures on the economy and financial stability. This work will continue in 2021.