Financial stability

The Finnish, Swedish, Norwegian and Danish banking sectors are large and concentrated and there are systemic risks relating to lending for the residential and commercial real estate markets.

Growing household debt and the changing structure of the banking system are increasing the vulnerability of the financial system.

It is important to ensure that payment transfers and card payments also operate when data connections with other countries are down.

The three key trends in payments are fragmentation of the market, payments going real time and the actual act of payment fading into the background.

A range of instruments could be deployed to restrain dangerous growth in lending for house purchase and household debt.

So far, the project to build a single market for capital has advanced at a relatively good pace, but now there are some difficult issues ahead.

The European Systemic Risk Board (ESRB) has issued a warning to Finland concerning the vulnerabilities related to household indebtedness and lending for house purchase. There are, however, no threats to the stability of the Finnish financial system in the short term.

Solvency II regulation has just come into effect in the EU. This was a necessary change, but its timing is awkward for insurance undertakings, as the current low interest rates and economic uncertainty are placing a strain on their solvency.

The regulation of banks’ capital adequacy was only recently reformed. Assessment and monitoring of the effects of regulation will ensure a level playing field for the banks and the capacity of the financial system to support sustainable economic growth.

In a securities trade, a central counterparty functions as a buyer in relation to the seller, and as a seller in relation to the final buyer. Key to the stability of the financial system is that all aspects of central counterparties’ risk management are sound.

Under the European Deposit Guarantee System proposed by the European Commission, responsibility for guaranteeing deposits would be gradually transferred from national level to the new system.

Market infrastructures are assumed to function reliably, and their crucial role is not noticed until they do not work.

Since the turn of the millennium, investment funds have become a significant financial intermediary in Finland. From the financial stability perspective, the risks surrounding them are similar to those that are usually related to banking.

This appendix describes the method applied, the results of which are reported in the article ‘Investment funds have grown significantly in Finland – do their operations involve stability risks?’

In Finland, the volume of housing loans is large compared with other bank lending and the capital requirements on the banks. Vulnerability is further increased by the relative size of household debt and the tendency for assets to be held in housing.

The uncertainty surrounding the outlook for global growth in general has also focused strongly on the banking and finance sectors, which are particularly sensitive to changes in the economic cycle.