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Finland given warning about financial system vulnerability

Ministry of Finance
Publication date 28.11.2016 18.10
News item

Household indebtedness is making Finland’s financial system vulnerable, warns European Systemic Risk Board.

Finland and seven other EU countries have received a warning from the European Systemic Risk Board (ESRB) about medium-term vulnerabilities in the residential real estate sector. According to the ESRB, the vulnerabilities are a source of risk to the stability of the financial system.

The ESRB considers Finland’s main vulnerability to be the high and increasing household indebtedness, which is concentrated in a relatively small group of households.  In addition, the ESRB is concerned about potential spillover effects on other countries in the Nordic-Baltic region if the risks were to materialise.

Finland already taking action

The ESRB published its warning to Finland on Monday 28 November. Minister of Finance Petteri Orpo sent a response to the ESRB in advance of the publication.

In his response, Minister Orpo emphasised that Finland is taking the warning seriously. The Government and the relevant authorities are monitoring the situation and are ready to take further steps to deal with the risks.

In the response, the Minister set out the measures that Finland has already embarked upon.

  • Since July a maximum loan-to-value ratio for new mortgages has been in force in Finland.
  • The Financial Supervisory Authority intends to raise the risk weights for banks’ mortgage exposures.
  • The tax deductibility of mortgage interest payments is being reduced gradually.
  • The Ministry of Finance is preparing legislation that would give the Financial Supervisory Authority a new tool for monitoring the stability of the financial system. The aim is that this systemic risk buffer would cover the risks that could emerge for the entire financial system and the stability of the national economy as a result of the structure of the banking system.

ESRB considers measures to be appropriate

In its warning, the ESRB acknowledged Finland’s policy measures and considered them to be appropriate.  However, the ESRB felt that the measures may not be sufficient to effectively combat all the vulnerabilities.

The ESRB oversees the stability of the financial system in the European Union and seeks to prevent systemic risks and to mitigate their impact. The work of the ESRB is undertaken by the central banks in cooperation with the supervisory authorities.

Press release of the European Systemic Risk Board
Information about the ESRB (Financial Supervisory Authority website)


Pauli Kariniemi, Financial Counsellor, tel. +358 2955 30210, [email protected]