The Bank of Finland is the Finnish parliament's bank and is therefore the bank of the Finnish people. The Bank of Finland has four core functions: monetary policy and research, oversight of the financial system, banking operations and maintenance of currency supply.
The Bank of Finland participates in the preparation, decision-making and implementation of the Eurosystem's monetary policy. The ECB Governing Council is the highest decision-making body of the Eurosystem. Erkki Liikanen, Governor of the Bank of Finland, is a member of the ECB Governing Council and participates for instance in the decision-making on ECB key interest rates.
The Bank pursues high-level research to increase its effectiveness within the Eurosystem and support its monetary policy preparation. Read more about the meaning of monetary policy.
Objective of financial market stability
The Bank of Finland promotes the stability and efficiency of the financial markets. The aim is to prevent financial market crises if possible or otherwise effectively manage them.
The Bank of Finland is responsible for oversight of the financial system, whereas the Financial Supervisory Authority (FIN-FSA), which operates in connection with the Bank of Finland, supervises individual financial market participants, such as banks, insurance companies and pension companies. Figuratively speaking, the Bank watches over the forest, while the FIN-FSA focuses on the trees.
Bank of banks
The Bank of Finland is the bank of the banks operating in Finland. While private individuals and companies cannot borrow from or deposit their assets with the Bank of Finland, banks have access to both a deposit and a lending facility.
The Bank of Finland implements monetary policy by conducting Eurosystem monetary policy operations with respect to Finnish banks. In other words, central banks provide the banks with a facility for depositing their assets with the central bank or extending credits to banks against eligible collateral, such as marketable securities.
Banking operations also cover the prudent and productive investment of the Bank of Finland's own financial assets. Of these, Finland's foreign exchange and gold reserves account for a large share.
Cash comes from the central bank
As opposed to many of the tasks of the central bank, which may seem abstract, cash is something very concrete. To many, perhaps the most familiar of the Bank of Finland's core functions is its issuance of banknotes and coins. The Bank of Finland is responsible for Finland's currency supply and for enhancing its quality, efficiency and security. The Bank issues new euro banknotes and coins in Finland and sees to the quality and authenticity of the nation's cash by withdrawing counterfeit and mutilated banknotes from circulation.
However, there is more to money than cash. Read more about what money is.
You can also test how much you know about the euro with the European Central Bank's quiz!
ECB directs Eurosystem operations
Eurosystem, European System of Central Banks, European Central Bank – how do they differ?
Let us start with the European Central Bank, or ECB. The European Central Bank directs the operations of the Eurosystem. Do you know where it is located? No, contrary to many other EU institutions it is not located in Brussels, but in Frankfurt am Main, Germany.
Eurotower---with-stars_pieni.jpgThe Eurosystem comprises the ECB and the central banks of the euro area member countries that have adopted the euro. The central banks of Finland, Estonia and France, for example, are members of the euro area. The Eurosystem sees to the euro and the monetary policy of the euro area.
Then there is also the European System of Central Banks, or ESCB, which includes not only the central banks of the Eurosystem but also the central banks of the EU member states which have not yet adopted the single currency. For example, the Swedish central bank is a member of the European System of Central Banks, although it is not a member of the Eurosystem, whereas the Bank of Finland is a member of both the Eurosystem and the European System of Central Banks.
The objective of Eurosystem is to keep inflation in check
The ECB is responsible for the proper discharge of the tasks of the Eurosystem, together with the euro area national central banks, including the Bank of Finland. The Bank of Finland for example issues the banknotes in Finland and acts as the bank of banks in Finland.
The Eurosystem is fully independent in the exercise of its tasks. The ECB, the national central banks of the Eurosystem and the members of their decision-making bodies may neither request nor take instructions from any body external to the Eurosystem. In other words, the central bank governors taking decisions for the Eurosystem may not request or take instructions for instance from politicians in the euro area.
The primary objective of the Eurosystem is to maintain price stability. A further aim is to foster the general economic policy of the EU, such as employment, as long as this does not clash with the price stability objective. So, the first priority is always to ensure that prices are under control.
Tasks of the Eurosystem
- defining and implementing the monetary policy
- conducting foreign-exchange operations
- holding and managing the official foreign reserves of the euro area countries
- promoting the smooth operation of payment systems
- issuing banknotes in the Eurosystem
- collecting statistics
- looking after financial stability and banking supervision
- cooperating on a European and international level
Where are the decisions of the ECB taken?
The Governing Council of the ECB is the highest decision-making body in the Eurosystem. It is composed of the members of the Executive Board of the ECB and the governors of the central banks of the euro area countries, including the Governor of the Bank of Finland. The ECB Governing Council convenes regularly twice a month in Frankfurt, and its key task is to take decisions on the monetary policy of the euro area.
The Executive Board of the ECB has six members, one of which is the Chairman of the ECB. The Executive Board is responsible for the day-to-day running of the ECB in accordance with the guidelines provided by the Governing Council. It leads the operation of the ECB in Frankfurt and prepares the meetings of the Governing Council, including draft resolutions.
The General Council of the ECB reviews matters of relevance to all EU member states. It is compoesd of the governors of the central banks of all EU member states and the Chairman and Vice-Chairman of the ECB. So, the Governor of the Bank of Finland is a member of both the Governing Council and the General Council, whereas the Governor of the Swedish central bank is a member of the General Council only. The General Council normally convenes four times in a year. It participates in the exercise and coordination of the ECB's advisory tasks and preparations for the enlargement of the euro area but is not involved in the decision-making of the Eurosystem.