Featured Product

    IMF Publishes Report on the 2018 Article IV Consultation with Finland

    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

    Featured Experts
    Related Articles
    News

    EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package

    EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.

    February 26, 2021 WebPage Regulatory News
    News

    EU Committee Recommends Systemic Risk Buffer of 4.5% in Norway

    The Standing Committee of the European Free Trade Association (EFTA) recommended that a systemic risk buffer level of 4.5% for domestic exposures can be considered appropriate for addressing the identified systemic risks to the stability of the financial system in Norway.

    February 25, 2021 WebPage Regulatory News
    News

    PRA Clarifies Approach to Onshoring of Credit Risk Rules for UK Banks

    In a recent statement, PRA clarified its approach to the application of certain EU regulatory technical standards and EBA guidelines on standardized and internal ratings-based approaches to credit risk, following the end of the Brexit transition.

    February 25, 2021 WebPage Regulatory News
    News

    FSB Sets Out Work Priorities for 2021

    In a recently published letter addressed to the G20 finance ministers and central bank governors, the FSB Chair Randal K. Quarles has set out the key FSB priorities for 2021.

    February 25, 2021 WebPage Regulatory News
    News

    EU Publishes Corrigendum to Revised Capital Requirements Regulation

    EU published, in the Official Journal of the European Union, a corrigendum to the revised Capital Requirements Regulation (CRR2 or Regulation 2019/876).

    February 25, 2021 WebPage Regulatory News
    News

    ESAs Issue Statement on Application of Sustainability Disclosures Rule

    ESAs published a joint supervisory statement on the effective and consistent application and on national supervision of the regulation on sustainability-related disclosures in the financial services sector (SFDR).

    February 25, 2021 WebPage Regulatory News
    News

    EC Consults on Crisis Management and Deposit Insurance Frameworks

    EC published a public consultation on the review of crisis management and deposit insurance frameworks in EU.

    February 25, 2021 WebPage Regulatory News
    News

    HKMA Enhances Loan Guarantee Scheme to Alleviate Pressure on SMEs

    HKMA announced that enhancements will be made to the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) and the application period will be extended to December 31, 2021.

    February 24, 2021 WebPage Regulatory News
    News

    EBA Proposes Standards for Supervisory Cooperation Under IFD

    EBA launched consultations on the regulatory and implementing technical standards on cooperation and information exchange between competent authorities involved in prudential supervision of investment firms.

    February 24, 2021 WebPage Regulatory News
    News

    BoE Addresses Banks in Scope of First Resolvability Assessment

    BoE issued a letter to the CEOs of eight major UK banks that are in scope of the first Resolvability Assessment Framework (RAF) reporting and disclosure cycle.

    February 24, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6629