Financial assets constitute the most important part of the Bank of Finland's balance sheet. At the end of 2010, the value of the Bank's own financial assets amounted to EUR 17,534 million. The financial assets comprise foreign reserves and assets denominated in euro.
Management of the reserves serves to maintain the value of the Bank' financial assets and its ability to promote the liquidity of the banking system and the economy. The financial assets are invested in accordance with international commitments and crisis management requirements, with a view to allowing for stable profit distribution to the state without jeopardising the Bank's capital adequacy. The Bank’s investment policy is guided by the objectives of security, liquidity and return. The Bank invests its financial assets in secure and liquid interest-rate instruments in order to ensure the immediate availability of assets whenever needed in different crisis situations. At the same time, however, the Bank bears responsibility for the evolution of the value of its assets, which also requires that the assets generate the best possible return. The liquidity of the foreign reserves and the euro-denominated financial assets is measured against potential crisis situations. The return objective carries more weight in the investment of euro-denominated assets than in the investment of foreign reserves.
The Bank of Finland's financial assets are invested exclusively in interest rate instruments, and of these only in instruments with the highest ratings, in accordance with strict risk management guidelines. The bulk of the Bank's financial assets is invested in debt securities issued by governments. Approximately 35% of the financial assets are invested in debt securities involving credit risk, with the aim of generating additional return and a better risk/return ratio. In investing its gold reserves, the Bank makes use of unsecured gold deposits similar to money market deposits, and gold interest rate swaps. Euro-denominated assets account for roughly 64% of the Bank of Finland's financial assets. The rest is composed of the US dollar, the pound sterling, the Japanese yen and the Swiss franc, and also include gold and items of the IMF Special Drawing Rights, SDRs.
The Bank of Finland defines a strategic benchmark for its financial assets. In addition, the Banks' investment organisation may deviate from this benchmark to generate a higher return. For the purpose of active investment, the Bank has allowed some room for manoeuvre and defined a profit target relative to the benchmark. As well as generating additional return, active investment aims at keeping in touch with the markets, maintaining counterparty contacts and developing investment expertise.
In 2012, the average total return on financial assets stood at 1.73%, or around EUR 280 million. An interest rate return of 2.59% and an exchange rate return of -0.84 % were the key factors underlying the total return on assets.