Financial Supervisory Authority’s macroprudential decision on structural additional capital requirements: systemic risk buffer to be imposed on credit institutions
The Board of the Financial Supervisory Authority (FIN-FSA) has decided to impose on credit institutions a structural additional capital requirement, i.e. systemic risk buffer. The buffer will strengthen the risk absorbency of credit institutions for structural systemic risks. It will be imposed on Nordea at a level of 3.0%, on Op Group 2.0%, on Municipality Finance Plc 1.5% and on other Finnish credit institutions 1.0%.
– Based on an analysis, the Board of the FIN-FSA considers that the structural systemic risks are so high in Finland's financial system that it is justified to impose a systemic risk buffer on all credit institutions, says Marja Nykänen, Chair of the Board of the FIN-FSA.
By risks, Nykänen refers, for example, to the fact that Finland's credit institutions sector is concentrated and, after the transfer of Nordea's domicile, also extremely large compared with the size of the economy as well as strongly interconnected with the financial systems of the other Nordic countries. The credit institutions sector plays a key role as a provider of financial services, so serious difficulties encountered by credit institutions could adversely affect financial intermediation significantly and thereby have a considerable negative impact on the real economy.
– In addition, Finnish credit institutions have risk concentrations in common, such as housing loans and receivables from construction and real estate sector companies. The significance of the risk concentration associated with housing loans is increased by households' high indebtedness, says Anneli Tuominen, Director General of the FIN-FSA.
Higher requirements for Nordea, OP Group and Municipality Finance
For Nordea, OP Group and Municipality Finance Plc the systemic risk buffer has been set higher than the others because their contribution to systemic risks is particularly large and their notional impact on the indicators examined as justification for a systemic risk buffer is substantial.
Within the banking union, the level of the systemic risk buffer has currently been set at 3% at most, even though a number of credit institutions operating in the banking union are, overall, larger and, from the perspective of the financial stability of the whole banking union, more significant than Nordea. On the other hand, in proportion to the economy of its home country, Nordea is the largest credit institution of the banking union countries.
– To ensure a fair operating environment in the banking union, it is justified that the requirements set for Nordea are in line with the banking union or the other EU countries, says Nykänen.
Nordea is an important credit institution for the global financial stability system
In addition to the systemic risk buffer, the additional capital requirements for global (G-SII/B) and national (O-SII) systemically important credit institutions were reviewed. Although a number of requirements are set for some credit institutions, only the largest of the requirements set for an individual credit institution is obligatory.
The decision was made to identify Nordea as a global systemically important credit institution (G-SII/B) and to impose on Nordea an additional capital requirement of 1.0%. The decision complies with the recommendation of the Financial Stability Board (FSB).
The Board of the FIN-FSA has identified the systemically significant credit institution for Finland (O-SIIs) and has imposed on them additional capital requirements as follows: Nordea 2.0%, OP Group 2.0% and Municipality Finance Plc 0.5%.
Of the additional capital requirements imposed, only the highest, i.e. according to the systemic risk buffer, are obligatory, as per the following table:
|Nordea||OP Group||Municipality Finance Plc||Other credit institution|
|Additional capital requirement for G-SII/B||1.0%|
|Additional capital requirement for O-SIIs||2.0%||2.0%||0.5%|
|Additional capital requirement based on systemic risk buffer||3.0%||2.0%||1.5%||1.0%|
|Obligatory additional capital requirement||3.0%||2.0%||1.5%||1.0%|
The additional capital requirement based on the systemic risk buffer enters into effect on 1 July 2019 and it will be reviewed annually in the future.
If Nordea's change of domicile is not realised, the systemic risk buffer requirement will be set in accordance with the decision for the other credit institutions that are subject to the decision. Decisions made on 22 December 2017 in respect of O-SII buffers will in that case remain in force.
For further information, please contact
- Marja Nykänen, Chairman of the Board of the Financial Supervisory Authority, tel. +358 9 183 2007
- Board's macroprudential decisions (pdf)
- Decision of the Board of the Financial Supervisory Authority on setting an additional capital requirement on the basis of the structural characteristics of the financial system (systemic risk buffer)
- Decision of the Board of the Financial Supervisory Authority on identifying other systemically important credit institutions (O-SIIs) and setting additional capital requirements (O-SII buffers)
- Decision of the Board of the Financial Supervisory Authority on identifying a global systemically important credit institution (G-SII/B) and setting an additional capital requirement (G-SII/B buffer)
- Decision proposal by the Director General of the FIN-FSA Mars 19 and June 26, 2018 (pdf, in Finnish)
- Opinions (in Finnish)
- What does the stability of the financial system mean?
- Principles for setting an additional capital requirement on the basis of the structural characteristics of the financial system (systemic risk buffer)
- Principles for determining national systemically important credit institutions
(O-SIIs) and setting additional capital requirements (O-SII buffers)
- Principles for determining global systemically important credit institutions
(G-SII/Bs) and setting additional capital requirements (G-SII/B buffers)
- Press release 17/2018: Macroprudential decision concerning countercyclical capital buffer and maximum loan-to-collateral ratio: Financial Supervisory Authority does not impose a countercyclical buffer requirement on credit institutions and keeps housing loan cap unchanged
- Press conference, 29 June 2018: Presentation and webcast (in Finnish)