The Bank of Finland prepares for financial system instability
The Bank of Finland prepares, in cooperation with other domestic and foreign financial stability authorities, for possible disruptions in the financial system by developing joint crisis management. The tools for responding to financial system crisis include, among other things, the resolution of distressed banks, deposit insurance schemes and possible emergency liquidity assistance for banks.
The Bank of Finland participates in maintaining the reliability and efficiency of the payment system and the overall financial system. As part of this task, the Bank of Finland prepares for financial system instability and crises.
The Bank of Finland is involved in extensive cooperation in the field of crisis management with national, European, Nordic and Baltic authorities. These authorities include all authorities responsible for financial stability, i.e. central banks, financial supervisors, resolution authorities and the respective ministries.
The cooperation includes, among other things, maintenance of crisis preparedness, exchange of information and status reports for crisis management purposes, arranging crisis management exercises, plans for crisis situations and coordination of communication.
Authorities have tools for responding to a crisis
If the stability of the financial system is threatened, the Bank of Finland, together with other authorities, will take action to stabilise the situation and minimise the negative effects.
The tools of financial stability authorities for responding to financial system crises include, among other things, the resolution of distressed banks, deposit insurance schemes and possible emergency liquidity assistance for banks.
Euro area countries participate in the EU's banking union, in which the supervision of banks is the responsibility of the Single Supervisory Mechanism (SSM) and resolution, i.e. the reorganisation of banks is a severe crisis situation, is the responsibility of the Single Resolution Mechanism (SRM). Deposit guarantee funds, in turn, are managed by national authorities.
The Bank of Finland has a representative in the Supervisory Board of the Single Supervisory Mechanism, but it is not a member of the decision-making bodies of the Single Resolution Mechanism (SRM). The Bank of Finland participates, however, in the development of resolution by, for example, working together with the national resolution authority (Financial Stability Authority) and in the resolution colleges of cross-border banks, and by issuing opinions on legislative proposals.
The Bank of Finland monitors and supports also the development of the EU's banking union.
Euro area credit institutions can receive central bank credit not only through standard monetary policy operations but exceptionally also through emergency liquidity assistance (ELA), the provision of which is the responsibility of euro area national central banks, i.e. also the Bank of Finland. Emergency liquidity assistance is subject to the Eurosystem's common principles and procedures, and it can be provided only to solvent financial institutions that are facing temporary liquidity problems.
The procedures to be applied in crisis situations are agreed on in advance in, for example, Memoranda of Understanding between financial stability authorities.