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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The Bank of Finland and Financial Supervisory Authority’s new stress-testing framework can be used to assess the ability of Finnish banks to cope in severe domestic or Nordic economic crises.
Due to climate change, extreme weather events will become more frequent, resulting in material damage to buildings and other infrastructure. In Finland, for example, this will probably increase the risk of coastal floods.
Finnish banks have granted relatively little credit to those industries most vulnerable to bankruptcies. This has helped minimise banks’ corporate credit risks.
The aim of the loan cap is to rein in household indebtedness and prevent housing price bubbles. Finland badly needs other instruments that can also restrict indebtedness.
Nordea Group is merging its large Nordic subsidiaries into the Swedish parent, which is supervised by Sweden’s supervisory authority. In Finland, the significance of the change is increased by Nordea’s large market share.
On 23 June 2016, the United Kingdom will hold a referendum on whether to remain in or leave the European Union. The economic implications will largely depend on the arrangements for economic relations between the EU and the UK.