HELSINKI: Household indebtedness is making the financial system of Finland and seven other European countries vulnerable, warned the European Systemic Risk Board (ESRB)on Monday, said an official press release.
ESRB has published a set of country-specific warnings on medium-term vulnerabilities in the residential real estate sector. The warnings are addressed to the relevant ministers of Austria, Belgium, Denmark, Finland, Luxembourg, the Netherlands, Sweden and the United Kingdom. The ESRB has a mandate to issues warnings when significant systemic risks are identified and when necessary to flag such risks. Finance Minister Petteri Orpo. File Photo Lehtikuva.
The ESRB considers Finland’s main vulnerability to be the high and increasing household indebtedness, which is concentrated in a relatively small group of households. In addition, the ESRB is concerned about potential spillover effects on other countries in the Nordic-Baltic region if the risks were to materialise. Meanwhile, Finance Minister Petteri Orpo sent a response to the ESRB in advance of the publication.
Orpo in his response, emphasised that Finland is taking the warning seriously. The government and the relevant authorities are monitoring the situation and are ready to take further steps to deal with the risks. In the response, the Minister set out the measures that Finland has already embarked upon.
The measures are: since July a maximum loan-to-value ratio for new mortgages has been in force in Finland, the Financial Supervisory Authority intends to raise the risk weights for banks’ mortgage exposures, the tax deductibility of mortgage interest payments is being reduced gradually, the Ministry of Finance is preparing legislation that would give the Financial Supervisory Authority a new tool for monitoring the stability of the financial system. the aim is that this systemic risk buffer would cover the risks that could emerge for the entire financial system and the stability of the national economy as a result of the structure of the banking system. In its warning, the ESRB acknowledged Finland’s policy measures and considered them to be appropriate. However, the ESRB felt that the measures may not be sufficient to effectively combat all the vulnerabilities.
The ESRB oversees the stability of the financial system in the European Union and seeks to prevent systemic risks and to mitigate their impact. The work of the ESRB is undertaken by the central banks in cooperation with the supervisory authorities.
