Management of Bank of Finland’s financial risks in 2025

Implementing monetary policy and safeguarding the stability and viability of the financial system are core central bank tasks. They involve financial risks, for which the Bank of Finland prepares by ensuring the strength of its balance sheet. During 2025, the Bank of Finland’s total risks increased slightly and risk buffers diminished.

Bank of Finland’s financial assets grew by EUR 4 billion in 2025

At the end of 2025, the Bank of Finland’s financial assets amounted to approximately EUR 20 billion. These consisted of gold holdings, foreign reserves, euro-denominated fixed income investments, and long-term investments (fixed income investments, equity and real estate fund investments and cash).

The Bank of Finland’s financial assets grew by approximately EUR 4 billion during 2025 due to the rise in the price of gold and the increases made in holdings of foreign exchange reserves and euro-denominated fixed income investments.

The Bank’s financial assets do not include items connected with the implementation of monetary policy, such as monetary policy loans to banks or securities acquired in monetary policy operations.

Foreign reserves include liquid fixed income investments. The size of the Bank’s foreign reserves has been scaled to the level required for performing 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 European Central Bank (ECB), and the risks and returns are partly shared among the national central banks.

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.

In the case of other monetary policy assets the risk corresponds to each national central bank’s capital key share of the aggregate monetary policy assets of the national central banks. In 2025 the Bank of Finland’s capital key was 1.816%.

Volume of Bank of Finland’s monetary policy assets continued to decrease in 2025

The volume of the Eurosystem’s monetary policy assets decreased in 2025 by around EUR 0.5 trillion to approximately EUR 3.8 trillion at the end of the year. The decrease was due to the maturing of bonds acquired under monetary policy purchase programmes.

The asset purchase programme (APP) and the PEPP were in the run-off phase and no further purchases were made under these in 2025.

The Bank of Finland’s share of monetary policy assets declined by about EUR 10 billion to approximately EUR 62 billion at the end of the year.

In addition to the claims listed in Table 12, the Bank of Finland’s assets included EUR 20 billion in intra-Eurosystem claims, consisting mainly of the T2 balance. At the end of 2025, the Bank of Finland’s balance sheet total was EUR 113 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 share 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 Bank applies sustainability criteria to delimit its direct fixed income investments. Assessments of the responsibility and reliability of service providers are also emphasized in the Bank’s indirect investment activities.

Bank of Finland’s balance sheet still had a structural interest rate risk in 2025

The liquidity created via 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 rate 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 rate dependencies of assets and liabilities on the Bank of Finland’s balance sheet poses a structural interest rate risk for the balance sheet.

For a long time, the Bank of Finland’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 Governing Council of the ECB began raising the Eurosystem’s policy interest rates, and the rate increases continued during 2023. This meant that the interest rate on central bank deposits also rose, which had a significant negative impact on net interest income. The policy rates have subsequently been cut, reducing the negative impact.

As a consequence of this financing cost, the Bank of Finland’s operating profit remained negative in 2025.

The interest rate expectations prevailing at the end of 2025 do not indicate any significant changes in policy rates in 2026. These expectations indicate that the operating profit for 2026 may be expected to be close to zero and thus slightly better than the operating profit for 2025.

As the bonds acquired under purchase programmes mature, the amount of central bank deposits used to finance them will decrease, which will also bring down financing costs and gradually improve the Bank of Finland’s profit.

The structural interest rate risk position will decrease as the fixed rate bonds acquired for monetary policy purposes mature.

Quarterly updates of financial risk figures are available on the Bank of Finland’s website (suomenpankki.fi).

Bank of Finland’s total risks increased slightly and risk buffers diminished during 2025

In 2025, the Bank’s expansion of its foreign reserves and euro-denominated fixed income portfolio added to its risks, whereas the maturing of monetary policy receivables reduced them. The combined effect of these factors was that total risks increased slightly.

The Bank of Finland measures total risks 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 2025, the total risk estimate was EUR 2.9 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 3.8 billion.

At the end of 2025, the Bank of Finland had revaluation accounts totalling EUR 0.7 billion and provisions totalling EUR 2.8 billion available to cover losses. The primary capital and reserve fund amounted to EUR 2.9 billion (Chart 18).

The depreciation of the dollar reduced the euro value of dollar-denominated foreign reserve investments and caused the revaluation accounts included in risk buffers to decline. In addition, the negative operating profit resulting from high financing costs reduced risk buffers. Due to these factors, the total amount of risk buffers diminished in 2025.

The Bank of Finland’s capital adequacy is sufficient to cover the risks arising from the performance of its tasks (Chart 19).