- Stress tests conducted by supervisory authorities show that Finnish banks would withstand a significant weakening of the operating environment and remain resilient.
- In Finance Finland’s opinion, the results indicate that there is no need to further tighten banks’ capital adequacy requirements. Doing so would only weaken banks’ ability to finance economic growth.
- The stress tests for Finnish banks were conducted by the European Banking Authority (EBA), the European Central Bank (ECB) and the Finnish Financial Supervisory Authority (FIN-FSA). The stress-testing exercise covers the three years from 2025 to 2027 and includes a baseline scenario and an adverse scenario.
Capital adequacy requirements require banks to have a certain amount of own funds in relation to the risks involved in their assets and operations.
According to recent stress tests conducted by supervisory authorities, the Finnish banking sector would withstand a significant weakening in the operating environment. The European Banking Authority (EBA) has published the results of its EU-wide stress test exercise that included the largest Finnish banks, and the Finnish Financial Supervisory Authority (FIN-FSA) has published the results of the banks that are subject to its direct supervision.
“Once again, the stress test results attest that the Finnish banking sector is financially stable and could withstand a significant weakening in the operating environment. Even under the adverse scenario and the harsh unemployment rate included in it, the key figures describing Finnish banks’ capital adequacy remained at a good level overall during the testing”, analyses Finance Finland’s Chief Economist Veli-Matti Mattila.
Banks entered the stress test exercise with strong profitability, which eased the stress compared to the previous exercises. The adverse scenario of the exercise was particularly relevant because it took into consideration the tightening of trade policies brought about by the tariffs imposed by the United States.
Now is not the time to undermine banks’ ability to finance households and businesses
Mattila says that there is no point in intervening with something that works.
“The outcome of the stress tests underlines that there is no need to tighten Finnish banks’ capital requirements. Banks already have capital buffers that are strong enough to withstand even adverse shocks”, highlights Mattila.
Unnecessarily tightening capital requirements could in itself pave the way to the kinds of difficult times that the stress tests aim to prepare for. Mattila warns against taking measures that would undermine Finnish banks’ ability to finance households, businesses and clean transition investments.
“Tightening banks’ capital requirements would weaken their ability to finance economic growth and potentially even steer their lending towards lower-risk targets. Many are already worried that banks cannot offer enough financing to small businesses just starting out, which typically involve a credit risk for banks”, says Mattila.
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