General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
January 15, 2019

IMF published staff report under the 2018 Article IV consultation with Finland. The overall financial sector is sound, although the sector's increased size and regional inter-connectedness have increased the demands on supervision. The banking sector is sound but has distinctive features that pose challenges for supervision. Immediate financial stability risks appear limited, but the system is highly concentrated, interconnected with financial sectors of other Nordic countries, and reliant on wholesale funding.

The report highlights that system-wide capital ratios exceed minimum requirements by a clear margin and leverage ratios have improved to levels above European averages. The quality of the loan stock is very good overall, with low levels of nonperforming loans (NPLs). The main risks to the banking system arise from the exposure to Nordic real estate markets and rollover risks from covered bond funding, which could escalate were there to be an increase in risk premia in global financial markets. Over half of bank lending is directed to real estate (including construction and housing corporations). The Finnish real estate investment market is estimated to be worth over a quarter of GDP in 2017, one of the largest in Europe. Danske Bank is a significant lender in Finland, but its branch activities in Finland are supervised by the Danish competent authority. The macro-prudential toolkit should be expanded to include debt-to-income and debt-service-to-income caps, supported by a comprehensive credit register. More data are needed to adequately monitor lending by non-banks, whose lending practices might also require changes to consumer protection laws.

The report concludes that the size of the banking sector has increased substantially with the recent re-domicile of Nordea to Finland. This has increased demands on supervision and heightened the importance of continued close regional cooperation and preparedness for crises. The responsible authorities have responded to the challenges posed by Nordea’s re-domicile, which has increased the size of the Finnish banking sector to about 3.75 times. FIN-FSA now has in its toolkit a new capital buffer—the bank-specific systemic risk buffer—in addition to global and other systemically important institution (G-SII and O-SII) buffers. These were set for financial institutions in June 2018 and became effective in January 2019; for Nordea, the binding buffer is the 3% set for its systemic risk buffer. ECB and Nordic authorities have reaffirmed their commitments to information exchange and cooperation, mitigating the risks of cross-border discrepancies. Nordea will contribute to the Finnish deposit guarantee fund with annual deposit guarantee fees, as with all banks in Finland. (The target for the Finnish fund is 0.8% of covered deposits by 2024.)

Nordea is also obliged to contribute to the Single Resolution Fund, like other euro area banks. No changes are expected to the single point of entry resolution strategy previously established for Nordea by the Swedish-led Supervisory College; the SRB has made decisions on minimum requirement for own funds and eligible liabilities (MREL) at the consolidated level, but decisions over, for example, subordination and intragroup MREL will be made in 2019. The report looks at digitalization as another growing challenge for supervision and regulation, owing to the rapid changes in services and platforms and the lack of data on activities of non-bank service providers. Since products are morphing quickly and across lines of supervision, approaches that stress regulation of activities might be more successful at managing prudential risks than those that regulate entities.

Furthermore, the report discusses the banking union, which is not yet complete: banking supervision in the euro area has improved significantly following the creation of the Single Supervisory Mechanism (SSM), but bank crisis preparedness and management still face significant transitional challenges. The confirmation of a backstop for the Single Resolution Fund in June is a significant step to boosting market confidence in the resources available to support resolution, especially in systemic cases, but important details still need to be finalized. Establishing a common European deposit insurance scheme would increase the confidence of retail depositors and is important for cases where liquidation would be required. Third-country bank branches are outside the perimeter of ECB banking supervision, creating scope for arbitrage and inconsistent supervisory treatment. The SSM should have supervisory powers over significant third-country branches operating in the euro area. 


Related Link: Staff Report

Keywords: Europe, Finland, Banking, Article IV, Systemic Risk, MREL, SSM, Banking Union, IMF

Related Insights

OFR Adopts Data Collection Rule on Centrally Cleared Repo Transactions

OFR adopted a final rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market.

February 20, 2019 WebPage Regulatory News

FHFA Finalizes Rule on Federal Home Loan Bank Capital Requirements

FHFA published, in Federal Register, the final rule to adopt, as its own, portions of the regulations of the Federal Housing Finance Board pertaining to the capital requirements for the Federal Home Loan Banks.

February 20, 2019 WebPage Regulatory News

SRB Publishes Framework for Performing Valuations in Resolution

The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 19, 2019 WebPage Regulatory News

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: Third Update for February 2019

EBA published answers to two questions under the Single Rulebook question and answer (Q&A) updates for this week.

February 15, 2019 WebPage Regulatory News

SEC Proposes Rule on Risk Mitigation Techniques for Uncleared SBS

SEC proposed a rule that would require the application of specific risk-mitigation techniques to portfolios of security-based swaps (SBS) that are not submitted for clearing.

February 15, 2019 WebPage Regulatory News

FSB Report Examines Financial Stability Implications of Fintech

FSB published a report that assesses fintech-related market developments and their potential implications for financial stability.

February 14, 2019 WebPage Regulatory News

US Agencies Amend Regulatory Capital Rule to Allow Phase-In for CECL

US Agencies (FDIC, FED, and OCC) adopted the final rule to address changes to credit loss accounting under the U.S. generally accepted accounting principles; this includes banking organizations’ implementation of the current expected credit losses (CECL) methodology.

February 14, 2019 WebPage Regulatory News

FASB Proposes Taxonomy Improvements for the Credit Losses Standard

FASB proposed the taxonomy improvements for the proposed Accounting Standards Updates on Targeted Transition Relief for Topic 326 (Financial Instruments—Credit Losses) and Topic 805 (on Business Combinations—Revenue from Contracts with Customers).

February 14, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2617