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 Articles

FDIC Consults on Approach to Resolution Planning for IDIs

FDIC approved an Advance Notice of Proposed Rulemaking (ANPR) and is seeking comment on ways to tailor and improve its rule requiring certain insured depository institutions (IDIs) to submit resolution plans.

April 22, 2019 WebPage Regulatory News

FDIC Specifies Submission Timeline for FFIEC 031, 041, and 051 Reports

FDIC published the financial institution letters (FIL-21-2019 and FIL-22-2019) that offer guidance on submission of Call Reports FFIEC 051, FFIEC 041, and FFIEC 031 for the first quarter of 2019.

April 19, 2019 WebPage Regulatory News

US Agencies Propose to Revise Call Reports FFIEC 031, 041, and 051

US Agencies (FDIC, FED, and OCC) proposed to revise and extend, for three years, the Call Reports FFIEC 031, FFIEC 041, and FFIEC 051.

April 19, 2019 WebPage Regulatory News

US Agencies Propose to Amend Rule on Supplementary Leverage Ratio

US Agencies (FDIC, FED, and OCC) are proposing to revise the capital requirements for supplementary leverage ratio, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act.

April 18, 2019 WebPage Regulatory News

EP Resolution on Proposal for Sovereign Bond Backed Securities

The European Parliament (EP) published adopted text on the proposal for a regulation of the European Parliament and of the Council on sovereign bond-backed securities (SBBS).

April 16, 2019 WebPage Regulatory News

HKMA Decides to Maintain Countercyclical Capital Buffer at 2.5%

HKMA announced that, in accordance with the Banking (Capital) Rules, the countercyclical capital buffer (CCyB) ratio for Hong Kong remains at 2.5%.

April 16, 2019 WebPage Regulatory News

EP Approves Agreement on Package of CRD 5, CRR 2, BRRD 2, and SRMR 2

The European Parliament (EP) approved the final agreement on a package of reforms proposed by EC to strengthen the resilience and resolvability of European banks.

April 16, 2019 WebPage Regulatory News

PRA Finalizes Policy on Approach to Managing Climate Change Risks

PRA published the policy statement PS11/19, which contains final supervisory statement (SS3/19) on enhancing banks’ and insurers’ approaches to managing the financial risks from climate change (Appendix).

April 15, 2019 WebPage Regulatory News

PRA Seeks Input and Issues Specifications for Insurance Stress Tests

PRA announced that it will conduct an insurance stress test for the largest regulated life and general insurers from July to September 2019.

April 15, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: First Update for April 2019

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

April 12, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2944