FIN-FSA Examines Capital Position of Banking Sector Amid Pandemic
FIN-FSA assessment reveals that the Finnish banking sector faced the COVID-19 pandemic with strong capital buffers. The capital ratios of the banking sector—that is, the ratio of own funds to total risk exposure—weakened in early 2020, due in particular to strong volatility in market prices. However, the decisions taken in Spring to lower the additional capital requirements, with the purpose of ensuring lending capacity, increased the surplus of own funds in the banking sector. The macro-prudential decisions increased the imputed lending capacity of the banking sector to Finnish businesses and households by nearly EUR 30 billion.
The capital ratios of the banking sector declined in the first quarter of 2020 compared with the situation at the end of 2019. At the end of March, the Common Equity Tier 1 (CET1) capital ratio was 16.8% (December 31, 2019: 17.6%) and the total capital ratio was 20.2% (December 31, 2019: 21.3%). The weakening of capital ratios reflected, in particular, strong volatility in market prices at the end of March, which increased the risk-weighted assets for market risk and decreased the amount of own funds, due to negative value changes in financial assets measured at fair value. Capital ratios were also weakened by changes to the definitions used for the purpose of calculating own funds requirements (application of the definition of default in accordance with the new EBA Guidelines) by some of the banks.
In March, ECB allowed the directly supervised banks with a flexibility in the fulfillment of certain additional capital and liquidity requirements, due to the exceptional situation created by the COVID-19 pandemic. The measures announced in the decision supported banks’ ability to provide credit to the real economy. The measures provided by ECB are for the most part available also to banks directly supervised by FIN-FSA, if necessary. ECB and FIN-FSA also issued a recommendation to banks to refrain from dividend distribution until October 01, 2020. The FIN-FSA Board also decided to lower the additional capital requirements that are within the scope of national decision-making. These decisions removed the systemic risk buffer of Finnish credit institutions. The FIN-FSA Board also decided to lower the additional capital requirement for other systemically important institutions (the O-SII buffer) in the case of OP Financial Group. The Finnish banking sector’s additional capital requirements were also decreased by decisions taken by other Nordic supervisors to ease the countercyclical capital buffer requirements.
Related Links
Keywords: Europe, Finland, Banking, Regulatory Capital, Basel, COVID-19, Own Funds, Macro-Prudential Measures, FIN-FSA
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Previous Article
IAIS Issues Level 2 Document for ICS Version 2.0Related Articles
BCBS Consults on Principles for Operational Risk and Resilience
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
FSI Note Discusses Challenges Associated with COVID Relief Measures
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
HKMA Announces Repayment Deferment Under Payment Holiday Scheme
HKMA, together with the Banking Sector Small and Medium-Size Enterprise (SME) Lending Coordination Mechanism, announced a ninety-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme.
ESRB Paper Presents Alternative Approach to EBA Stress Test Proposal
The Advisory Scientific Committee of ESRB published a response, in the form of an Insights Paper, to the EBA proposals for reforms to the stress testing framework in EU.
MAS Announces Key Initiatives to Support Adoption of SORA
MAS announced several initiatives to support adoption of the Singapore Overnight Rate Average (SORA), which is administered by MAS.
BoE Updates Template and Definitions for Form ER
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.
PRA to Extend Temporary High Balance Coverage Amid COVID Crisis
PRA published the policy statement PS19/20 on the final policy for extending coverage under the Financial Services Compensation Scheme (FSCS) for Temporary High Balance.
EBA Publishes Standards on Disclosure and Reporting of MREL and TLAC
EBA published the final draft implementing technical standards for disclosures and reporting on the minimum requirements for own funds and eligible liabilities (MREL) and the total loss-absorbing capacity (TLAC) requirements in EU.
EBA Releases Erratum for Phase 2 Package on Reporting Framework 2.10
EBA published an erratum for the phase 2 of technical package on the reporting framework 2.10.
EC Sets Out Updated Technical Information for Solvency II Calculations
EC published the Implementing Regulation 2020/1145, which lays down technical information for calculation of technical provisions and basic own funds.
