Banking crises spread like epidemics, rumours or computer viruses

​According to a study conducted at the Bank of Finland and using a new research methodology based on epidemiology, the collapse in 2008 of a major British, Spanish, French or German bank would have had a significant negative impact on the money market. In contrast, the Irish, Greek and Portuguese banks that suffered badly from the financial crisis caused only little in the way of contagion. The results demonstrate that the position of a bank in the interbank network explains the risk of contagion better than its size or level of indebtedness. The results of this study are recounted in the Bank of Finland’s Financial Market Report 2/2013. This new edition of the Report also deals with themes relating to financial intermediation, payments and the use of macroprudential instruments.

Finnish companies have saved more than they’ve invested for 20 years already
The self-financing ratio of Finland’s corporate sector has for a long time been over 100%. This could be one of the reasons for the low corporate demand for credit.

Finland’s corporate funding structure undergoing change
The stock of corporate bonds issued by Finnish companies is growing exceptionally quickly. In contrast, banks’ corporate loan stock has almost completely stopped growing.

Stock of housing corporation loans more than tripled in 10 years
Loans granted to housing corporations by Finnish MFIs have been growing at 15% per annum at the same time as the pace of growth in the household and corporate loan stocks has faded towards zero. The growth in housing corporation loans has been sustained by demand for housing construction and building renovations plus the channelling of government production subsidies via MFI loans.

Strong growth in nonperforming loans at euro area banks
The growth in nonperforming loans at euro area banks shows no sign of slowing down. Nonperforming loans’ share of the total stock of loans has grown since 2008 from 3% to over 7%.

Many euro area countries place restrictions on large cash payments
All the largest and some of the smaller euro area countries limit the use of cash in making large payments. Maximum limits vary between EUR 1,000 and EUR 15,000.
 
New Regulation will open up competition between central securities depositories
A new EU Regulation on central securities depositories currently under preparation will increase competition between central securities depositories in Europe and harmonise practices relating to their authorisation.

Many European countries impose restrictions on banks’ housing and other real estate lending
Loan-to-value caps are the most commonly used instrument, but many countries are also restricting the level of household debt, or debt service burden.

For further information, please contact: Economist Jukka Vauhkonen, jukka.vauhkonen@bof.fi, tel. +358 10 831 2111.

Financial Market Report 2/2013 (in Finnish)