FIN-FSA’s decision to lower capital requirements supports banks’ lending capacity 18 Mar 2020 13:49 Finance Finland (FFI) welcomes the Finnish Financial Supervisory Authority’s (FIN-FSA) decision to lower Finnish credit institutions’ capital requirements. Together with the decisions of the macroprudential supervisors of other countries, this decision is estimated to increase the potential lending capacity of credit institutions to Finnish businesses and households by €30 billion. “This decision helps banks to respond to market uncertainty caused by the coronavirus pandemic and to maintain their ability to continue financing the economy. The Finnish banking sector stands well-capitalised in the face of the risks caused by the current crisis. However, we need relevant authorities to implement measures that help banks continue their lending to households and businesses”, emphasises FFI’s Director and Chief Economist Veli-Matti Mattila.“We also need complementary actions from the state. There is need for a new guarantee product, which the state-owned specialised financing company Finnvera should introduce in its range of products as soon as possible. The basic premise of this product is to grant guarantee to companies whose sales and profitability have weakened or are about to weaken significantly due to the pandemic. The companies must be fundamentally healthy without any prior difficulties in their operations or profitability before the pandemic”, Mattila says.The FIN-FSA Board’s decision to lower capital requirements is implemented by removing the systemic risk buffer and by adjusting credit-institution specific requirements so that the structural buffer requirements of all credit institutions will fall by 1 percentage point.Structural macroprudential buffers are set primarily in case of serious problems in the banking sector. In the currently extremely exceptional circumstances, however, it is justified to lower the buffers to prevent the weakening of credit institutions’ ability to provide credit to the corporate sector, in particular. In order to ensure the functioning of the financial system, it is important that the risk-bearing capacity of the credit institutions sector also remains adequate in the future.“Fast action is also needed at EU level. Transition to the new definition of default should be postponed at least by a year, as should the entry into force of new rules for making provisions for non-performing exposures. This would prevent new definitions and rules from increasing the burden on banks while deferred repayments and other relief measures granted to customers are in force”, FFI’s Mattila says.