In an economic crisis there can be a risk of a credit slump in which loan losses weaken banks’ ability to extend credit. During the COVID-19 pandemic the risks of corporate lending have grown, but substantial loan losses have been avoided.
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Regulatory reform has made banks more resilient than they were during the previous crisis. A robust lending capacity is now needed to help Finnish firms through the coronavirus crisis.
Finnish banks have granted relatively little credit to those industries most vulnerable to bankruptcies. This has helped minimise banks’ corporate credit risks.
A range of instruments could be deployed to restrain dangerous growth in lending for house purchase and household debt.
Neighbouring countries’ loan ceiling regulations are tighter than the loan ceiling that comes into force in Finland in summer 2016.
The impact of regulation on growth in loan margins has been exaggerated. The impact is strongest in high-risk loans.
The consequences of a banking crisis could be severe in the exceptionally concentrated Finnish banking system.