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Banking Industry Compliance Challenges in Finland: A Year of Heightened Risk

Introduction

Finland’s banking industry faced significant challenges in 2022, as the energy crisis triggered by Russia’s war in Ukraine put pressure on the country’s financial stability. The Bank of Finland played a crucial role in navigating these risks.

Energy Crisis and Financial Stability

The energy crisis had a ripple effect throughout Europe, causing sharp fluctuations in financial markets and increasing interest in economic data. In response, the Bank of Finland:

  • Renewed its statistics production to provide more detailed information on financial markets
  • Revised approaches to compiling data on insurance and securities

Despite these efforts, risks to financial stability increased in 2022 due to higher levels of household debt, inflation, and financing costs.

Supporting Liquidity and Macroprudential Policy

The Bank of Finland emphasized the importance of supporting liquidity to avoid extensive liquidity problems that could undermine financial stability. The bank also implemented regulatory changes to ensure that banks had sufficient capital buffers to withstand the economic downturn, allowing them to continue intermediating finance to the real economy.

Macroprudential policy key benefits:

  • Maintaining the resilience of the Finnish banking system
  • Managing financial stability and the risk of financial crises

Climate Change and Financial Stability

The Bank of Finland continued to examine the impact of climate change on the financial sector, assessing risks such as:

  • Collateral loss
  • Debtors’ solvency

The bank also developed its analysis work further to better correspond with changing conditions associated with the green transition.

International Monetary Fund Assessment

The International Monetary Fund (IMF) completed an extensive assessment of Finland’s financial system stability and risks in 2022, issuing macroprudential policy recommendations to improve legislation, caps on borrowing, and regulatory development.

Key IMF recommendations:

  • Improve legislation
  • Develop stricter caps on borrowing
  • Enhance regulatory development

Conclusion

The banking industry continues to navigate complex challenges. The Bank of Finland remains committed to maintaining financial stability and promoting a resilient banking system.