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

    FSB Examines Financial Stability Aspects of Bigtech and Cloud Services

    FSB published two reports that consider the financial stability implications from the offering of financial services by bigtech firms and the adoption of cloud computing and data services across a range of functions at financial institutions.

    December 09, 2019 WebPage Regulatory News
    News

    APRA Specifies Capital Treatment of Equity Investments in ABGF

    APRA published a letter to the authorized deposit-taking institutions outlining the regulatory capital treatment of their equity investments in the Australian Business Growth Fund (ABGF).

    December 09, 2019 WebPage Regulatory News
    News

    EBA Publishes Action Plan on Sustainable Finance

    EBA published the Action Plan on sustainable finance for banks.

    December 06, 2019 WebPage Regulatory News
    News

    EBA Single Rulebook Q&A: Second Update for December 2019

    EBA updated the Single Rulebook question and answer (Q&A) tool with answers to three questions under the Capital Requirements Regulation (CRR) and the second Payment Services Directive (PSD 2).

    December 06, 2019 WebPage Regulatory News
    News

    APRA Publishes Proposal to Increase Transparency of Banking Data

    APRA proposed to substantially increase the volume and breadth of data it makes publicly available on authorized deposit-taking institutions, including banks, credit unions, and building societies.

    December 05, 2019 WebPage Regulatory News
    News

    ESMA Consults on Guide to Internal Controls for Credit Rating Agencies

    ESMA launched a consultation on the guidelines on internal controls for credit rating agencies (CRAs).

    December 05, 2019 WebPage Regulatory News
    News

    EU Finalizes Directive and Prudential Rules for Investment Firms

    EU published, in the Official Journal of the European Union, the Directive (2019/2034) and Regulation (2019/2033) on the prudential requirements and supervision of investment firms.

    December 05, 2019 WebPage Regulatory News
    News

    OSFI Revises Guideline on Principles for Management of Liquidity Risk

    OSFI finalized Guideline B-6 on the principles for the management of liquidity risk.

    December 05, 2019 WebPage Regulatory News
    News

    ESAs Publish Draft Amendments to Bilateral Margin Requirements

    ESAs published joint draft regulatory technical standards to amend the Delegated Regulation on the risk mitigation techniques for non-cleared over-the-counter (OTC) derivatives as well as a joint statement on the introduction of fallbacks in OTC derivative contracts and the requirement to exchange collateral.

    December 05, 2019 WebPage Regulatory News
    News

    RBNZ Releases Final Decisions Related to Capital Review for Banks

    RBNZ released a paper that sets out its final decisions following the comprehensive review of its capital framework for banks, known as the Capital Review.

    December 05, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4279