Finland: Financial System Stability Assessment
IMF Staff Country Reports, January 23, 2023
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Bibliographic details
- Published: January 23, 2023
- Series: IMF Staff Country Reports
Executive summary and key findings
- Finland has further improved the regulation and supervision of its financial sector since the 2016 Financial Sector Assessment Program, in part driven by European legislation and institutions.
- The size of the banking sector increased significantly in 2018 with the redomicilation of Nordea.
- Finland weathered the coronavirus disease 2019 pandemic well relative to other economies, with fiscal support and interventions from the authorities.
- Finland is now navigating a weaker economic outlook given the war in Ukraine and ensuing energy crisis, despite limited direct financial exposures to Russia.
- Risks to financial stability:
- A large banking sector that is highly concentrated and dominated by a few institutions.
- Interconnectedness with other financial systems in the Nordic region.
- Stress-test results:
- The banking system appears resilient to severe macro-financial shocks.
- The banking system remains vulnerable to liquidity shocks.
- Resolution and crisis management:
- Should be supported by greater coordination of authorities’ preparation and management of future crises.
Analytical observations
- Structural and institutional changes:
- Continued strengthening of regulation and supervision since the 2016 Financial Sector Assessment Program.
- European legislation and institutions have been a driving force behind reforms.
- Sector composition and vulnerabilities:
- Significant expansion of banking sector size in 2018 due to Nordea’s redomicilation.
- High concentration increases systemic importance of a few institutions and amplifies interconnectedness within the Nordic financial network.
- Recent shock performance:
- Effective fiscal support and authority interventions contributed to relatively strong pandemic outcomes.
- Current geopolitical shocks (war in Ukraine) and energy crisis have weakened the economic outlook and present new risks to financial stability, even with limited direct Russian exposures.
Policy implications and recommendations
- Strengthen coordination among authorities for resolution and crisis management to improve preparedness and management of future crises.
- Monitor and address liquidity risk vulnerabilities in the banking sector, given stress-test indications of liquidity fragility despite resilience to macro-financial shocks.
- Continue supervisory and regulatory enhancements aligned with European frameworks to bolster sector stability and oversight.
Content in this bundle
- Finland: Financial System Stability Assessment; IMF Country Report No. 23/39; January 3, 2023