Implementing monetary policy and safeguarding the stability and functioning of the financial system are core central bank tasks. They involve financial risks, which are addressed using risk buffers. In 2023, the Bank of Finland’s risk buffers diminished, because higher interest rates raised the amount of interest expenses it paid on central bank deposits.

In brief

Management of financial risks

In performing central bank tasks, the Bank of Finland is subject to financial risks. These risks are addressed using buffers.

Monetary policy measures

The Bank of Finland’s balance sheet is large because of the monetary policy measures conducted by the Bank. The balance sheet will be reduced over time, as the bonds acquired under purchase programmes mature and the longer-term refinancing operations are repaid.

Interest expenses on the balance sheet

The Bank of Finland’s balance sheet contains a structural interest rate risk. In 2023, the Bank’s risk buffers diminished because the higher level of interest rates raised the amount of interest expenses paid by the Bank on central bank deposits.

Risks arise in Bank of Finland’s investment activities and in monetary policy implementation

At the end of 2023, the Bank of Finland’s financial assets amounted to approximately EUR 13 billion. These consisted of gold holdings, foreign reserves and long-term investments, which included fixed-income investments, equity and real estate fund investments, and cash. The financial assets do not include items connected with the implementation of monetary policy, such as refinancing operations or securities acquired in monetary policy operations.

Foreign reserves include liquid fixed-income investments. The volume of the Bank’s foreign reserves has been scaled to the level required for the functions of a central bank.

A significant proportion of the Bank of Finland’s financial assets are debt securities purchased for monetary policy purposes and claims on banks resulting from monetary policy implementation. The Eurosystem’s monetary policy measures are implemented on a decentralised basis among the different Member States and the ECB, but the risks and returns are largely shared among the national central banks.

The risk relating to monetary policy assets corresponds, in principle, to each national central bank’s capital key share in the aggregate monetary policy assets of the national central banks. At the end of 2023, the Bank of Finland’s share was 1.822%.

However, the risks associated with government debt instruments and government-related debt instruments purchased under the public sector purchase programme (PSPP) and the pandemic emergency purchase programme (PEPP) are borne individually by each national central bank involved.

Volume of Bank of Finland’s monetary policy assets decreased in 2023

The volume of the Eurosystem’s monetary policy assets decreased in 2023 by around EUR 1.2 trillion and was approximately EUR 5.1 trillion at the end of the year. The decrease was due particularly to the repayments of targeted longer-term refinancing operations (TLTROs).

No net purchases were made under the asset purchase programme (APP) or the PEPP in 2023. Reinvestments of maturing bonds under the APP were discontinued in mid-2023. Reinvestments under the PEPP were still continuing at the end of 2023.

The Bank of Finland’s share of monetary policy assets declined by around EUR 20 billion and was approximately EUR 86 billion at the end of the year.

Table 10.
Bank of Finland’s financial assets and share of monetary policy assets 31 Dec 2023EUR million 31 Dec 2022EUR million
Financial assets 13,421 11,037
Gold 2,945 2,690
Foreign reserves 6,923 6,864
Euro-denominated fixed-income investments 0 0
Long-term investments 3,553 1,484
Long-term interest rate investments 493 0
Equity fund investments 1,281 1,328
Real estate fund investments 172 156
Cash 1,607 0
Share of monetary policy assets 85,674 106,168
Refinancing operations 7,476 24,327
Targeted longer-term refinancing operations1 7,147 24,203
Other refinancing operations1 328 123
Debt instruments under the asset purchase programme 50,537 53,757
Finnish government bonds and government-related bonds 35,208 37,295
Bonds of supranational institutions1 4,651 5,056
Covered bonds1 4,776 5,085
Corporate bonds1 5,902 6,321
Debt instruments under the pandemic emergency purchase programme2 27,627 28,046
Terminated programmes 35 39
Securities markets programme1 35 39
Covered bond purchase programme 0 0
Total 99,095 117,206
1) Capital key share (1.822% as of 1 Jan 2023) of aggregate claims by national central banks.2) In the case of the pandemic emergency purchasing programme the table shows the amount on the Bank of Finland’s balance sheet.

In addition to the claims listed in Table 9, the Bank of Finland’s assets included EUR 66 billion in intra-Eurosystem claims, consisting mainly of the T2 balance. At the end of 2023, the Bank of Finland’s balance sheet total was EUR 178 billion.

Bank of Finland manages its risks through diversification

The Bank of Finland’s financial risks consist of market, credit and liquidity risks. Market risk refers to the possibility of financial loss as a result of variation in, for example, exchange rates, interest rates and stock prices.

Exchange rate risk is the source of most volatility in the value of the financial assets. The Bank of Finland diversifies its exchange rate risk by investing in the US dollar, the pound sterling and the Japanese yen. The exchange rate risk is also diversified through investment in the Chinese yuan, since the Bank of Finland has receivables from the International Monetary Fund (IMF).

The strategic allocation of investments is determined by means of a benchmark index. This index, together with a highly detailed limits framework, acts as a guide to taking on interest rate and credit risks. In 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 with high credit ratings.

The Bank of Finland’s financial assets also include some investments in the international equity and real estate markets. The investments are made through funds and diversify the other risks on the Bank’s balance sheet.

In the implementation of monetary policy purchase programmes, the Bank of Finland, in the same way as the other central banks, complies with the Eurosystem eligibility criteria and other risk-management rules.

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

Structural interest rate risk on the Bank of Finland balance sheet

The liquidity created via the purchase programmes and refinancing operations is reflected on the liabilities side of the Bank of Finland’s balance sheet as central bank deposits.

The Eurosystem sets, on monetary policy grounds, the interest payable on the central bank deposits made by commercial banks. The interest rate decision has an immediate effect on the Bank of Finland’s interest expenses. Monetary policy assets, however, mainly carry a fixed interest rate. Thus, an increase in the deposit rate weakens the Bank’s net interest income. This difference in the interest rates applied to assets and liabilities on the Bank’s balance sheet poses a structural interest rate risk for the balance sheet.

For a long time, the Bank’s purchases of fixed-rate bonds in connection with monetary policy implementation were made at a low yield level. In the second half of 2022, the Eurosystem’s policy interest rates were raised, and the rate increases continued during 2023. As a result, the interest rate on the refinancing operations increased, and reinvestments of maturing bonds under the purchase programmes were carried out at a higher yield than before. However, as policy rates rose, the interest rates on central bank deposits also rose, which had a much greater negative impact on net interest income than the above-mentioned positive impacts.

As a consequence of this financing cost, the Bank of Finland’s operating profit was negative in 2023. Based on the interest rate expectations prevailing at the end of 2023, the operating profit will remain in negative territory in the immediate years ahead.

The structural interest rate risk position will decrease as the fixed-rate bonds acquired for monetary policy purposes mature. However, the reinvestment of principal payments from maturing bonds serves, at the same time, to maintain the structural interest rate risk position.

Quarterly updates of financial risk figures are available on the Bank of Finland’s website (, under the section Risk management and control.

Bank of Finland’s total risks remained almost unchanged, but risk buffers diminished in 2023

There were no significant changes in the Bank of Finland’s total risk exposure in 2023. With monetary policy operations entering their maturing phase, the continuing increase in total risk seen in recent years came to an end.

The Bank of Finland measures total risk exposure on the balance sheet using well established statistical methods. In measuring the risk arising from monetary policy, 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.

As an estimate of total risk, the Bank of Finland uses a figure representing the loss that would occur in the following year with a probability of 1% (expected shortfall at a 99% confidence level).

The risk estimate is supplemented with stress tests that assess losses which could be incurred under possible, though improbable, scenarios.

At the end of 2023, the total risk estimate was EUR 2.8 billion. This figure does not include the gold price risk, as the gold revaluation account covers a significant decline in value. If the gold price risk is included, the total risk estimate is EUR 3.0 billion.

At the end of 2023, the Bank of Finland had revaluation accounts totalling EUR 1.1 billion and provisions totalling EUR 3.5 billion available to cover losses. The primary capital and reserve fund amounted to EUR 2.9 billion (Chart 24).

The risk buffers diminished during the year because the negative operating profit resulting from the higher interest rates was covered from provisions. The Bank of Finland’s capital adequacy is sufficient to cover the risks arising from the performance of its tasks (Chart 25).