The Finnish financial system has functioned reliably. The near-term likelihood of serious disruptions relating to business and credit cycles is small. Even so, the financial system is structurally more vulnerable, as household indebtedness has increased and the structure of the banking system is changing.

The Finnish economy has finally left recession behind. The flip side of accelerating economic growth has, however, often been an increase in stability risks linked with credit growth. The high amount of debt burdening some households poses a risk to financial stability. "Reasonable loan maturities and the traditional practice of loan amortisation curb household indebtedness, and these should be adhered to in the future, too," said Member of the Board Marja Nykänen today at the press briefing for the publication of the latest issue of the Bank of Finland’s journal Euro & talous.

Cooperation between authorities for the development of macroprudential tools needs to be continued. The aim is to create a sufficiently comprehensive macroprudential toolkit to safeguard the stability of the Finnish financial system, prevent over-indebtedness and ensure households’ debt-servicing capacity. "It is important for the authorities to have adequate tools in place to exert influence so as to prevent imbalances possibly building up during a period of low interest rates from growing too large," underlined Ms Nykänen.

In Finland, banking and insurance are concentrated on a few large market participants. The structure of the Nordic banking system is changing significantly, as some of the largest banks in terms of market share have begun to convert their subsidiaries into branches. Such changes may have an impact on the spillover of stability risks and the availability of finance in Finland. "With a strengthening of banks’ Nordic linkages, disruptions in the financial system may spread more easily from one country to another," Ms Nykänen pointed out.

Changes in the banking system highlight the significance of cooperation between authorities. Although banks’ capital adequacy is currently in order, the prospect of financial crises or other serious disruptions emerging in the future cannot be ruled out. This is why one must ensure that cooperation between authorities functions well in the event of exceptional situations.

Digitalisation and new market players have expanded the spectrum of financial services available to consumers. Payments are going real-time and payment transactions are becoming more imperceptible. New players have also entered the consumer credit market. "Payment execution will become easier and the payment transaction will fade into the background. In the management of one’s own finances, financial literacy will become increasingly important," noted Ms Nykänen.

Presentation (ppt)