Press release 14 June 2016

Macroprudential decision: A minimum level for risk weights on housing loans, capital buffer requirement remains at zero

The Board of the Financial Supervisory Authority has discussed the stability of the financial system in accordance with the quarterly schedule prescribed in law. Macroprudential tools will be used as follows:   

  • a countercyclical capital buffer requirement will not be imposed
  • measures will be taken to introduce a minimum level of 10% for the average risk weight on housing loans of banks that have adopted the Internal Ratings Based Approach. The minimum level would come into force on 1 July 2017 at the latest
  • the additional capital requirements on systemically important credit institutions will remain unchanged.

A countercyclical capital buffer requirement, as referred to in Chapter 10, Section 4 of the Credit Institutions Act will not be imposed, and it will remain at 0.0%. The justification is that, overall, cyclical systemic risks to the financial system have remained unchanged. The primary risk indicator, i.e. the credit-to-GDP gap, has declined.

“Continuing growth in household indebtedness in a weak economic environment increases risks. One precautionary measure is to ensure that the risk weights of housing loans reflect the increased risk, and it is therefore justified to set a minimum level for risk weights,” says Pentti Hakkarainen, Chairman of the Board of the Financial Supervisory Authority. “Risk weights based on the Internal Ratings Based Approach are low in Finland by international comparison, and IRB risk weights vary significantly between credit institutions.”

In setting a minimum level, consideration was given to the multiplicative effects of possible disruptions in housing and mortgage markets in stressed conditions as well as to other systemic risks related to mortgage lending and household indebtedness.

The contemplated means for setting the minimum level for the risk weight on housing loan portfolios is the application of Article 458 of the Capital Requirements Regulation. Application of Article 458 involves an EU process in which the Council of Ministers may oppose the decision on the initiative of the Commission. The European Systemic Risk Board (ESRB) and the European Banking Authority will give statements on this matter to the Commission. FIN-FSA will hold discussions with the EU authorities involved in the matter before a final decision of the Board of FIN-FSA on the application of Article 458 is made.

The additional capital requirements (O-SII buffers) on systemically important credit institutions will remain in line with the decision announced on 6 July 2015. They are Nordea Bank Finland Plc and OP Group 2.0% and Danske Bank Plc and Municipality Finance Plc 0.5%.

The Board of FIN-FSA made its decision based on a proposal by the Director General of FIN-FSA and after consultation with the Bank of Finland, the Ministry of Finance and the Ministry of Social Affairs and Health. In accordance with the regulations governing the Single Supervisory Mechanism, the European Central Bank was also consulted in respect of the decision.

For further information, please contact

Pentti Hakkarainen, Chairman of the Board of the Financial Supervisory Authority, tel. +358 10 831 2002.


See also