Lowering the loan cap will reduce the risks associated with debt

An integrated European banking market can be seen as an ultimate objective of the Europe’s banking union project. The recent initiative to reduce home bias in banks’ sovereign debt exposures aims to support these goals.

We found a connection between the euro exchange rate and the relative performance of ‘small’ and ‘large’ companies. One could suggest that strengthening euro leads large companies to underperform small companies.

The Finnish real estate investment market is lively and large in proportion to the size of the economy, foreign investment and high valuations may expose the Finnish market to economic shocks from abroad. The risks may reflect on banking particularly via lending.

When indebted households cut their spending during an economic downturn, this also increase the financial difficulties of non-financial corporations.

The risks relating to high household indebtedness are realised when indebted households respond to the threat of payment difficulties by sharply reducing their consumption.

Finns are among the leaders in Europe in the use of digital financial services. Nordic banks have invested in digital services.

A single European Deposit Insurance Scheme would reduce the risk of deposit runs.

In retail banking, the two key services are the provision of credit and management of payment transfers. The revised Payment Services Directive (PSD2), which entered into force in Finland in January 2018 may revolutionise the operating environment for banks.

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.