Notes on the balance sheet

Assets

1. Gold and gold receivables

The Bank of Finland’s holdings of gold total 1,576,487 troy ounces (1 troy ounce = 31.103 g). In the annual accounts, gold has been valued at market price. At the beginning of 1999 the Bank of Finland – and the other national central banks (NCBs) participating in the Eurosystem – transferred about 20% of its gold holdings to the ECB.

2. Claims on non-euro area residents denominated in foreign currency

The item consists of claims on non-euro area residents denominated in foreign currency and included in the Bank’s foreign reserves, and receivables from the International Monetary Fund (IMF).

Receivables from the International Monetary Fund (IMF)

Finland’s quota in the IMF amounts to SDR 2,410.6 million. The reserve tranche is the part of the Bank’s quota that has been paid to the IMF in foreign currency. Another part of the quota was formerly paid to the IMF in Finnish markka. The IMF has lent this part back to the Bank of Finland. The net effect of the Finnish markka quota on the Bank’s balance sheet is zero, since the above-mentioned receivables and the liability are included in the same balance sheet item.

The Bank of Finland’s special drawing rights allocation amounts to EUR 4,234.5 million. The special drawing rights are reserve assets created and allocated by the IMF to its member countries. They are used in currency transactions as normal currency units. The value of the item increased significantly in August 2021, when the IMF increased the allocation of special drawing rights by an equivalent of USD 650 billion. This was a global crisis measure of historic proportions, which the IMF approved to reinforce the liquidity buffers of its member countries and to support economic recovery. It also improved the possibilities to continue combating the pandemic. The Bank of Finland’s share in the allocation was SDR 2.3 billion, i.e. EUR 2.8 billion. The value of the sub-item also changes on the basis of foreign exchange transactions between the member countries. It is also affected by interest earned and paid as well as remuneration on the Bank’s claims in the IMF.

The Bank of Finland’s receivables from the IMF total EUR 5,016.0 million.

2.2 Balances with banks and security investments, external loans and other external assets

This item includes foreign currency-denominated deposits and security investments as well as external loans and other external assets.

4. Claims on non-euro area residents denominated in euro

As at 31 December 2021, the Bank of Finland had no claims on non-euro area residents denominated in euro.

5. Lending to euro area credit institutions related to monetary policy operations denominated in euro

This item includes monetary policy instruments used by the Bank of Finland to implement monetary policy as part of the Eurosystem. The item consists of interest-bearing credit to Finnish credit institutions, and the amount recorded is determined by the credit institutions’ liquidity needs.

The total Eurosystem holding of monetary policy assets amounts to EUR 2,201,882.1 million, of which the Bank of Finland holds EUR 36,113.4 million. In accordance with Article 32.4 of the ESCB Statute, losses from monetary policy operations, if they were to materialise, are shared in full by the Eurosystem NCBs, in proportion to the prevailing ECB capital key shares. Losses can only materialise if both the counterparty fails and the recovery of funds received from the resolution of the collateral provided by the counterparty is not sufficient. For specific collateral which can be accepted by NCBs at their own discretion, risk sharing has been excluded by the Governing Council of the ECB.

5.1 Main refinancing operations

Main refinancing operations (MROs) are executed through liquidity providing reverse transactions with a frequency and a maturity of normally one week, on the basis of standard tenders. They are conducted as fixed rate tender procedures. These operations play a key role in achieving the aims of steering interest rates, managing market liquidity and signalling the monetary policy stance.

5.2 Longer-term refinancing operations

These operations (LTROs) aim to provide counterparties with additional longer-term refinancing. In 2021 operations were conducted with maturities equal to the reserve maintenance period and with maturities between 3 and 48 months. These operations were conducted at fixed rate with allotment of the total amount bid.

In 2016 the Governing Council introduced a series of four targeted longer-term refinancing operations (TLTRO II) with a four-year maturity. The last of these operations matured in 2021. Additionally, in 2019 the Governing Council introduced a new series of seven quarterly targeted longer-term refinancing operations (TLTRO III). Furthermore, on 10 December 2020 the Governing Council added three further operations to this series, which were conducted between June and December 2021. These operations have a three-year maturity. For the first seven TLTRO III, from September 2021, starting 12 months after the settlement of each TLTRO III, participants have the option on a quarterly basis of terminating or reducing the amount of TLTRO III concerned before maturity. For the eighth or subsequent TLTROs III, participants have that option on a quarterly basis starting in June 2022. According to the initial decisions taken by the Governing Council, the final interest rate applicable to each TLTRO III operation could be as low as the average interest rate on the deposit facility prevailing over the life of the operation. Furthermore, in response to the COVID-19 shock, in 2020Decisions of the Governing Council of 30 April 2020 and 10 December 2020. the Governing Council decided that for the period between 24 June 2020 and 23 June 2021 and the period between 24 June 2021 and 23 June 2022 – referred to as the special interest rate period and the additional special interest rate period respectively – the interest rate applicable can be as low as 50 basis points below the average interest rate on the deposit facility prevailing over the same period, but in any case may not become less negative than -1%.

The actual interest rates can only be known at the maturity or early repayment of each operation and before that a reliable estimate is only possible as far as the interest rate related data regarding the special interest rate period and the additional special interest rate period have already been communicated to the counterparties. Consequently, it was deemed a prudent approach to use the deposit facility rate minus 50 basis point, but in any case not higher than -1%, for calculating the TLTRO III interest over the two special interest rate periods, and the deposit facility rate for calculating the TLTRO III interest over the rest of the life of an operation, until more reliable data is available. This means, that for the annual accounts 2021, the following rates are used for calculating the TLTRO III interest accruals: interest rates over the special interest rate periods until 23 June 2021, for which the interest rate related data was communicated to the counterparties on 10 September 2021, and the deposit facility rate minus 50 basis points, with a ceiling of -1%, over the additional special interest rate period from 24 June 2021 until 31 December 2021.

Additionally, on 30 April 2020 the Governing Council decided to conduct a new series of seven additional longer-term refinancing operations which matured in the third quarter of 2021, called pandemic emergency longer-term refinancing operations (PELTROs). These operations provided liquidity support to the euro area financial system and contributed to preserving the smooth functioning of money markets by providing an effective backstop after the expiry of the bridge longer-term refinancing operations (LTROs) that have been conducted since March 2020. Furthermore, on 10 December 2020 the Governing Council also decided to offer four additional PELTROs in 2021 allotted on a quarterly basis, each with a tenor of one year. These operations provide a liquidity backstop to the euro area banking system and contribute to preserving the smooth functioning of the money market during the extended pandemic period.

The PELTROs were conducted as fixed rate tenders with full allotment. The interest rate is 25 basis points below the average rate applied in the Eurosystem’s main refinancing operations over the life of the respective PELTRO.

5.3 Fine-tuning reverse operations

Fine-tuning reverse operations aim to regulate the market liquidity situation and steer interest rates, particularly to smooth the effects on interest rates caused by unexpected market fluctuations. Owing to their nature, they are executed on an ad-hoc basis.

5.4 Structural reverse operations

These are reverse open-market transactions through standard tenders to enable the Eurosystem to adjust its structural liquidity position vis-à-vis the financial sector.

5.5 Marginal lending facility

Marginal lending facilities may be used by counterparties to obtain overnight liquidity from NCBs at a pre-specified interest rate against eligible assets.

5.6 Credits related to margin calls

This item refers to cash paid to counterparties in those instances where the market value of the collateral exceeds an established trigger point implying an excess of collateral with respect to outstanding monetary policy operations.

6. Other claims on euro area credit institutions denominated in euro

This item consists of euro-denominated deposits and accounts with euro area credit institutions.

In 2021 the Eurosystem conducted net purchases under the asset purchase programme (APP)Further details on the APP can be found on the ECB’s website.at a monthly pace of EUR 20 billion on average. In December 2021 the Governing Council decidedSee the press release of 16 December 2021 on the Governing Council’s decision. on a monthly net purchase pace of EUR 40 billion in the second quarter and EUR 30 billion in the third quarter of 2022. From October 2022 onwards, the Governing Council will maintain net asset purchases at a monthly pace of EUR 20 billion for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.

The Governing Council also intends to continue the reinvestments for an extended period of time past the date when the Governing Council starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

In addition, in 2021 the Eurosystem carried on its net asset purchases under the pandemic emergency purchase programme (PEPP)Further details on the PEPP can be found on the ECB’s website., with a total envelope of EUR 1,850 billionIf favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full.. Purchases were conducted in a flexible manner based on the assessment of financing conditions and the inflation outlook. In December 2021 the Governing Council also decided to discontinue net asset purchases under the PEPP at the end of March 2022 but they could be resumed, if necessary, to counter negative shocks related to the pandemic. Furthermore, the Governing Council extended the reinvestment horizon for the principal payments from maturing securities purchased under the PEPP until at least the end of 2024. PEPP reinvestments can be adjusted flexibly across time, asset classes and jurisdictions at any time. The future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.

The securities purchased under all of these programmes are valued on an amortised cost basis subject to impairment (see ‘Valuation and amortisation of securities’ in the notes on accounting conventions). The amortised cost of the securities held by the Bank of Finland, and their market value Market values are indicative and are derived on the basis of market quotes. When market quotes are not available, market prices are estimated using internal Eurosystem models. (which is not recorded on the balance sheet or in the profit and loss account and is provided for comparison purposes only), are as follows:

The Governing Council assesses on a regular basis the financial risks associated with the securities held under these programmes. Impairment tests are conducted on an annual basis, using data as at the year-end and are approved by the Governing Council. In these tests, impairment indicators are assessed separately for each programme.

In accordance with Article 32.4 of the ESCB Statute, losses from holdings of securities purchased under the SMP, CBPP3 and CSPP programmes, from holdings of securities of supranational organisations purchased under the PSPP and from holdings of covered bonds and corporate sector securities purchased under the PEPP, if they were to materialise, are shared in full by the Eurosystem NCBs, in proportion to their prevailing ECB capital key shares.

As a result of impairment tests conducted as at 31 December 2021 on securities purchased under the aforementioned programmes, the Governing Council decided that all future cash flows on these securities are expected to be received. The following table shows, for each programme, total holdings of Eurosystem NCBs and the Bank of Finland’s share held on the balance sheet.

7.2 Other securities

This item includes fund shares from the euro area. In 2020, it also included domestic commercial papers purchased by the Bank of Finland to mitigate the negative economic impacts of the COVID-19 pandemic.

8. Intra-Eurosystem claims

8.1 Participating interest in ECB

Pursuant to Article 28 of the ESCB Statute, the ESCB national central banks are the sole subscribers to the capital of the ECB. Subscriptions depend on shares which are fixed in accordance with Article 29 of the ESCB Statute and are subject to adjustment every five years or whenever there is a change in composition of the ESCB national central banks.

For the Bank of Finland this balance sheet item includes (i) the paid-up share in the ECB’s subscribed capital, (ii) the net amount paid by the Bank of Finland due to the increase in its share in the ECB’s equity value resulting from all previous ECB capital key adjustments, and (iii) contributions in accordance with Article 48.2 of the Statute of the ESCB.

Capital of the ECB

The subscribed capital of the ECB is EUR 10,825 million. After the Bank of England’s withdrawal from the ESCB on 31 January 2020, the ECB kept its subscribed capital unchanged and the share of the Bank of England in the ECB’s subscribed capital was reallocated among both the euro area NCBs and the remaining non-euro area NCBs.

The ECB’s paid-up capital also remained unchanged at EUR 7,659 million in 2020, as the remaining NCBs covered the withdrawn Bank of England’s paid-up capital of EUR 58 million. In addition, the Governing Council decided that the euro area NCBs would pay up in full their increased subscriptions in two annual instalments in 2021 and 2022In particular, Decision (EU) 2020/138 of the ECB of 22 January 2020 on the paying-up of the European Central Bank’s capital by the national central banks of Member States whose currency is the euro and repealing Decision (EU) 2019/44 (ECB/2020/4), Decision (EU) 2020/136 of the ECB of 22 January 2020 on the paying-up of the European Central Bank’s capital by the non-euro area national central banks and repealing Decision (EU) 2019/48 (ECB/2020/2) and Decision (EU) 2020/139 of the ECB of 22 January 2020 laying down the terms and conditions for transfers of the European Central Bank’s capital shares between the national central banks and for the adjustment of the paid-up capital and repealing Decision (EU) 2019/45 (ECB/2020/5). As a result, the Bank of Finland was required to pay up the first instalment of EUR 11.2 million on 29 December 2021, increasing its share in the paid-up capital of the ECB from EUR 139.3 million in 2020, to EUR 150.5 million in 2021. The second instalment will be paid up in 2022. The balance sheet item also includes net adjustments totalling EUR 26.0 million recorded in different years on account of changes to the ECB capital key.

8.2 Claims equivalent to the transfer of foreign reserves

These represent the Bank of Finland’s claims arising from the transfer of foreign reserve assets to the ECB, when the Bank joined the Eurosystem. Pursuant to Article 30.2 of the Statute of the ESCB, these contributions are fixed in proportion to NCBs’ share in the subscribed capital of the ECB, meaning the size of the item changes when the ECB capital key changes. The remuneration of these claims is calculated daily at the latest available marginal interest rate used by the Eurosystem in its tenders for main refinancing operations, adjusted to reflect a zero return on the gold component.

As at 31 December 2021, the Bank of Finland’s claims equivalent to the transfer of foreign reserves totalled EUR 741.1 million.

8.3 Net claims related to the allocation of euro banknotes within the Eurosystem

This item consists of the claim arising from the adjustment of the banknotes of the Bank of Finland to correspond to the ECB capital key as well as the liability related to the share of 8% of the banknotes in circulation allocated to the ECB. For both the claim and the liability, the counter entry is recorded under the balance sheet liability item ʻBanknotes in circulation’.According to the accounting regime chosen by the Eurosystem on the issue of euro banknotes, a share of 8% of the total value of the euro banknotes in circulation is allocated to the ECB on a monthly basis. The remaining 92% of the value of the euro banknotes in circulation are allocated to the NCBs also on a monthly basis, whereby each NCB shows in its balance sheet a share of the euro banknotes issued corresponding to its paid-up share in the ECB’s capital. The difference between the value of the euro banknotes allocated to the NCB according to the aforementioned accounting regime, and the value of euro banknotes put into circulation, is recorded as ‘Net claims/liabilities related to the allocation of euro banknotes within the Eurosystem’.

At the end of 2021, the balance sheet item totalled EUR 8,263.0 million (EUR 6,871.6 million in 2020). The increase in comparison to 2020 was due to the increase of 2.7% in banknotes put into circulation by the Bank of Finland in 2021 as well as the rise of 7.7% in banknotes in circulation in the Eurosystem as a whole. The remuneration of these claims is calculated daily at the latest available marginal interest rate used by the Eurosystem in its tenders for main refinancing operations.

8.4 Other claims within the Eurosystem (net) or liability item Other liabilities within the Eurosystem (net)

The balance of EUR 24,802.0 million as at 31 December 2021 represents the sum of three components: (1) the position of the Bank of Finland vis-à-vis the ECB in respect of the transfers issued and received through TARGET2 by the ESCB national central banks, including the ECB, plus the balances held with Eurosystem central banks through correspondent accounts; (2) the position vis-à-vis the ECB in respect of the pooling and allocation of monetary income within the Eurosystem pending settlement; and (3) the Bank of Finland’s position vis-à-vis the ECB in respect of any amounts receivable or refundable, including the amount due to the Bank of Finland from the ECB in respect of the ECB’s interim profit distribution.

Regarding the first component, the year-end net transfers via TARGET2 had a credit balance of EUR 25,282.4 million. The remuneration of this position is calculated daily at the latest available marginal interest rate used by the Eurosystem in its tenders for main refinancing operations.

The second component, i.e. the position vis-à-vis the ECB in respect of the annual pooling and allocation of monetary income within the Eurosystem NCBs, had a debit balance of EUR -483.1 million at year-end (see ‘Net result of pooling of monetary income’ in the notes on the profit and loss account).

Concerning 2021, following a decision by the Governing Council, the amount due to euro area NCBs with respect to the ECB’s interim profit distribution was EUR 150 million (see ‘Interim profit distribution by the ECB’ in the notes on accounting conventions). The related amount due to the Bank of Finland as at 31 December 2021 was EUR 2.8 million (see ‘Income from other equity shares and participating interests’ in the profit and loss account).

9. Other assets

This item consists of the Bank of Finland’s holdings of euro coins, fixed assets and investment assets (shares and other equity). The item also includes valuation results of off-balance sheet items, accruals and other receivables as well as the pension fund’s assets.

Liabilities

1. Banknotes in circulation

This item consists of the Bank of Finland’s share, in accordance with the ECB capital key and adjusted for the share allocated to the ECB, of the total amount of euro banknotes in circulation.

During 2021, the total value of banknotes in circulation within the Eurosystem increased by 7.7%. According to the allocation key, the Bank of Finland had euro banknotes in circulation worth EUR 26,100.1 million at the end of the year, compared with EUR 24,243.3 at the end of 2020. The value of the euro banknotes actually issued by the Bank of Finland in 2021 increased by 2.7% from EUR 17,371.6 million to EUR 17,837.1 million. As this was less than the allocated amount, the difference of EUR 8,263.0 million (compared to EUR 6,871.6 million in 2020) is shown under asset sub-item ‘Net claims related to the allocation of euro banknotes within the Eurosystem’.

2. Liabilities to euro area credit institutions related to monetary policy operations denominated in euro

In accordance with the Governing Council’s decisions, the Bank of Finland has made available for lending its holdings of securities purchased under the CBPPs, CSPP, PSPP and the PEPP. The Bank of Finland has also made available for lending securities belonging to its own investment assets. Securities lending operations conducted against collateral other than cash are recorded in off-balance-sheet accounts at the year-end.Cash collateral received in securities lending operations is recorded in on-balance-sheet accounts (see liability item 3 ‘Other liabilities to euro area credit institutions denominated in euro’ and liability item 5 ‘Liabilities to non-euro area residents denominated in euro’ in the notes on the balance sheet). Such lending operations with a value of EUR 109.5 million (2020: EUR 744.6 million) were outstanding as 31 December 2021.