Macroprudential decision: FIN-FSA Board lowers credit institutions’ capital requirements

“The coronavirus pandemic has significantly weakened the economic situation and the operating conditions of the financial sector in Finland. The FIN-FSA Board announced on 15 March that it had launched work on a rapid review of the level of capital requirements within the scope of national decision-making. With the decision taken now, the Board will significantly improve Finnish banks’ ability to supply credit to households and businesses,” says Marja Nykänen, Chair of the FIN-FSA Board.

The decision of the FIN-FSA will increase the lending capacity of theFinnish banks by around EUR 52 billion. This, together with the decisions of the macroprudential supervisors of other countries, is estimated to increase the imputed lending capacity of credit institutions to Finnish businesses and households by EUR 30 billion. The actual effects of the decisions will depend on the measures taken by the credit institutions themselves. The FIN-FSA will closely monitor that banks use the positive effects of these measures to mitigate the impact of the crisis and not to channel them into the payment of dividends or performance bonuses.

Structural macroprudential buffers, i.e. systemic risk buffers, are set primarily in case of serious problems in the banking sector. In the current extremely exceptional circumstances, however, it is justified to lower the buffers to prevent the weakening of credit institutions’ ability to provide credit to the corporate sector, in particular. In order to ensure the functioning of the financial system, it is important that the risk-bearing capacity of the credit institutions sector also remains adequate in the future.

The decisions taken now will, at the same time, promote a smooth transition to regulation that will change with the EU’s new ‘banking package’ at the beginning of next year. The decisions also take into account the future guidelines of the European Central Bank on credit institution-specific macroprudential buffers and the proportionality of these requirements. The decision is preliminary and the final decision will be made after the procedures laid down in EU regulation.

Of the additional capital requirements imposed, only the higher one is binding in accordance with the table below:

	Nordea	OP Financial Group	Municipal Finance Plc	Other credit institutions
Additional capital requirement for G-SII/Bs	-	-	-	-
Additional capital requirement for O-SII/Bs	2.0% (2.0%)	1.0% (2.0%)	0.5% (0.5%)	-
Additional capital requirement based on systemic risk buffer	0% (3.0%)	0% (2.0%)	0% (1.5%)	0% (1.0%)
Obligatory additional capital requirement	2,0% (3.0%)	1,0% (2.0%)	0,5% (1.5%)	0% (1.0%)

The table presents the additional capital requirements in accordance with the FIN-FSA Board decision (the requirements currently in force in brackets).

At its meeting, the FIN-FSA Board also decided that it will not set a countercyclical capital buffer (CCyB) requirement for banks and other credit institutions and that the loan cap for residential mortgage loans other than first-home loans will remain at 85% in line with the Board’s previous decision.

The Board of the Financial Supervisory Authority assesses quarterly the short- and long-term risks to the stability of Finland’s financial system. If necessary, the Board may tighten or relax the so-called macroprudential instruments, which promote stability. The Board decides quarterly on the levels of the countercyclical capital buffer (CCyB) and the maximum loan-to-collateral (LTC) ratio. The levels of the systemic risk buffer and the additional capital requirements for nationally systemically important institutions (O-SII buffers) are reviewed annually. If the situation so requires, the Board may also make the required decisions in a different schedule.

Appendices

Attachments will be published on website www.finanssivalvonta.fion 18 March 2020.

• Board’s decision on the application of macroprudential instruments (pdf)
• Board’s decision on the lowering of credit institutions’ capital requirements (pdf)
• Proposal of the Director General of the FIN-FSA, circulated for comment, on the application of macroprudential instruments (pdf, in Finnish)
• Proposal of the Director General of the FIN-FSA, circulated for comment, on the lowering of credit institutions’ capital requirements (pdf, in Finnish)
• Opinions on the Director General’s proposal on the application of macroprudential instruments (in Finnish, pdf)
  • Bank of Finland
  • Ministry of Finance
  • Ministry of Social Affairs and Health

• Opinions on the Director General’s proposal on the lowering of credit institutions’ capital requirements (pdf, in Finnish)
  • Bank of Finland
  • Ministry of Finance
  • Ministry of Social Affairs and Health