Strong financial regulation needed for shielding against crises

“In a volatile global environment, strength in the banking sector is not a foregone conclusion but is achieved through persistent efforts. Regulation creates a foundation for sustainable economic growth. It ensures that banks can withstand crises and are able to extend loans to households and businesses in difficult times as well,” 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. “A financially sound and reliable banking sector is a necessary prerequisite for financial stability and long-term growth in the economy,” says Nykänen.

International crises increase risks to the economy and the financial system

Geopolitical tensions have darkened the outlook for the economy and have shaken financial markets. Uncertainty about the future is reducing household consumption and business investment. More cyber and hybrid threats are also emerging in the current volatile global environment.

“Households and businesses become more cautious as concerns grow over the economy and their own finances. This quickly becomes reflected across the entire economy,” says Deputy Governor Nykänen. Cyber and hybrid threats have also intensified as a result of geopolitics and the rapid development of artificial intelligence (AI). “Financial sector entities are required to be vigilant and to be able to enhance their data security and operational reliability so they can withstand cyber and hybrid threats,” says Nykänen.

Housing market gloom puts a strain on households and investors

The Finnish housing market has been in an economic downturn for an exceptionally long time. Prices of existing dwellings have been declining for several years, and housing sales are slow. The rise in interest rates means that there are fewer intentions to buy, and the higher rates are also a strain particularly on the finances of heavily indebted households, although so far, borrowers have, for the most part, coped well with their loan servicing.

Real estate investors and housing corporations may also experience difficult times, especially if they carry substantial amounts of variable rate debt. It will take time for the housing market to recover. The uncertain economic outlook is dampening both the demand for housing and the volume of new construction projects. The risk is that the looser provisions regulating mortgages and housing company loans, which are due to enter into force in the summer, will not stimulate housing sales by much, but will in the longer run increase the housing market’s exposure to disruptive situations.

Access to finance for businesses can be improved through European cooperation

Deeper European capital markets would improve opportunities for both private individuals and professionals to invest in different countries and in a range of investment products, and would therefore diversify the sources of finance for governments, banks and businesses. Deepening European cooperation should also include a common deposit insurance scheme that could replace national schemes. 

“Better functioning capital markets would boost economic growth, and a common deposit insurance scheme would strengthen confidence in Europe’s banking sector,” says Marja Nykänen. “Europe should also reduce its high dependence on individual major providers of ICT services located outside Europe. Reduced dependence would decrease both political risks and the financial system’s operational risks,” emphasises Nykänen.

Presentation 20 May 2026, Deputy Governor Marja Nykänen (in Finnish)

Articles and Financial Stability Assesment (in Finnish)