State guarantees for banks' unsecured credit facilities
The Government will request authority from Parliament to provide guarantees for credit instruments issued by banks or bank holding companies. Guarantees would be granted on a discretionary basis for bank deposit certificates and bonds being issued without any other financial collateral. The State Treasury has been suggested to be the effective operator of this system under the guidance of the Ministry of Finance.
Guarantees could only be granted to viable banks that meet all solvency requirements. The guarantees are subject to market rates and, based on the proposed authority, a maximum of EUR 50 billion in guarantees can be drawn. This sum corresponds to the volume of refinancing requirement for the debt instruments being guaranteed. This temporary authority to grant government guarantees is in force to the end of 2009, but the Government will assess by 30 April 2009 whether a need for more guarantees exists any longer.
These guarantees and market-based payments collected on these instruments will be governed by the Act on State Lending and State Guarantees (449/1988). The guarantees will be granted without financial collateral. When deciding to adopt State guarantees, the Government will also ratify specific terms and conditions for the guarantees. The guarantees will apply to credit facilities with maturities from a minimum of three months to a maximum of 5 years. Under current provisions, it is possible to levy an annual charge of 0.50% and a 0.25% flat fee on guarantees for long-term loans. Short-term loan instruments include a 0.25% charge computed on the basis of the debt maturity. The legal provisions on these levies will be amended.
The governments and heads of state of the euro area member states issued a declaration on 12 October 2008 on joint measures in the euro area and the United Kingdom to stabilise the financial markets. The goals specified in the declaration will be implemented in Finland based on the same principles as in the rest of the EU. It is vital that the competitive stance of Finnish banks remains neutral. To secure the proper functioning of financial services, it is important to be able to grant government guarantees to safeguard bank liquidity in the first place. Other government proposals may come into consideration at a later date.
Inquiries: Mr Peter Nyberg, Director General, tel. 358 (0)9 160 33055 and Mr Veikko Kantola, Senior Government Adviser, tel. 358 (0)9 160 34953.