Implementing the euro area summit declaration in Finland
The euro area countries issued a declaration on 12 October 2008 on a concerted European action plan of the euro area countries and the United Kingdom to stabilize the financial markets. The agreement will be implemented in Finland through the same measures as in the rest of the EU. From the viewpoint of Finland it is essential that the competitive stance of Finnish banks remains neutral. The following tools included in the declaration are pertinent at the moment:
* providing viable financial institutions with additional capital resources from government funds and
* government recapitalization of distressed banks.
These support initiatives apply to all Finnish banks and Finnish authorities will make provision for preparing these support measures. They will be carried out to the extent and under conditions that are appropriate for Finland. The plan can be supplemented with other suitable measures at a later date to complement this action.
The scheme is effective until the end of 2009. A maximum sum in euros will be determined, but the exact figure still requires further preparation.
These initiatives will be adopted only on condition there is need for them in Finnish banks. The only relevant ones at the moment are government guarantees on new debt instruments issued by banks, pointed out Finance Minister Jyrki Katainen.
The drafting of the Act on the Government Guarantee Fund has been in progress at the Ministry of Finance for some time now and will be submitted to Parliament this autumn, commented Minister Mari Kiviniemi.
Government guarantees on new debt issuance by banks:
* By request the government will provide guarantees for new debt instruments issued by banks.* To be eligible for government guarantees, the bank must be properly operational and able to meet solvency requirements.
* The maximum maturity for the debt is five years.
* Government guarantees are subject to compensation on commercial terms.
* A guarantee authority will be granted to government by Parliament for a limited sum in euros. The Treasury will deal with the practicalities involved.
Government capital investment in Finnish banks:
* Banks will be given an opportunity to receive government capital injections.* The capital investment will be considered Tier 1 capital.
* The terms of repayment, maturities and other conditions will be specified in the terms and conditions for the investment.
* Interest will correspond to at least commercial interest rates and will be paid only where bank solvency allows it and the bank has any non-restricted equity.
* Parliament will authorise government to subscribe the capital.
Recapitalization of distressed banks:
* Procedures stipulated in the Act on the Government Guarantee Fund will apply.* Might involve government control of a bank and redeeming of shares and working capital loans.
Inquiries: Mr Peter Nyberg, Director General, tel. 358 (0)9 160 33055