Risks to financial stability are growing due to global power politics
The environment in which Finland’s financial system operates has weakened significantly this year. Russia’s war in Ukraine is still a threat to Europe’s security, and there are now also tensions from a westerly direction, as the Trump administration in the United States is undermining confidence in international cooperation.
“Finland’s financial system has remained stable, but the threats posed to it have grown and are now largely from outside our borders,” says Deputy Governor of the Bank of Finland Marja Nykänen. The Bank of Finland today published its annual assessment of the stability of Finland’s financial system and the risks affecting it. “Banks and financial stability authorities must be prepared to deal with complex crises, some of which could intensify and spread in an instant,” says Nykänen.
Finland’s banking system must be able to offer its customers loans and other critical banking services even during crisis situations that are very hard to foresee. “Strong resilience among the banks is especially important for the stability of Finland’s financial system, as financing for households and businesses is largely reliant on the banking sector,” says Nykänen. To guard against unforeseeable crises, there is a need for banks to have releasable capital buffers. This could be achieved by allowing more flexible use of the countercyclical capital buffer requirement than at present.
Solutions needed for risks encountered by households
The high indebtedness of households and the prevalence of variable rate loans are a significant vulnerability of the Finnish financial system. The risks associated with household indebtedness have partially materialised in recent years, but they have not threatened the stability of the financial system. The Finnish Government decided in April to ease the regulatory provisions concerning mortgage lending and lending to housing companies. If the risks grow, there will be a need to strengthen the resilience of the financial system by increasing banks’ capital buffer requirements.
Cybercrime is growing, and phishing attempts and other scams targeting bank customers have increased. “The banks have reduced their branch networks and moved customers to online services regardless of their customers’ digital skills. The banks gain financially from this shift, but the online risks are borne by customers. If the banks do not take action themselves, the regulations regarding attribution of liability for scams targeting bank customers should be revised,” says Deputy Governor Nykänen.
Capital market growth would support investments
In an environment that is geopolitically and economically challenging, bold and swift reforms are required from Europe. In March, the European Commission published plans for a Savings and Investments Union (SIU). The aim is to improve the way savings are channelled to finance productive investments that foster growth in the economy. “Europe must focus on attracting investments and growth-oriented businesses. This is why Finland must actively promote the EU’s Savings and Investments Union in accordance with the Commission’s plan,” says Nykänen.
Presentation 21 May 2025, Deputy Governor Marja Nykänen (in Finnish)