The stability of the financial system is a precondition for financial institutions to conduct business in support of sustainable economic growth. Financial stability can be promoted by ensuring adequate risk resilience in individual financial institutions and within the financial system as a whole and, if necessary, by implementing preventive measures for the mitigation of risks to financial stability.
Macroprudential stability refers to the stability of the financial system as a whole. The approach may be limited to the national financial system or to a broader area, such as the EU, the Nordic countries, or the entire international financial system. Microprudential supervision focuses on the assessment of risks encountered by individual financial market entities. The main objective is to identify systemic risks that would significantly weaken the real economy and well-being if they were to materialise. Such serious shocks to the financial system may build up for various reasons. Possible significant imbalances, generated in connection with credit cycles, can unwind and trigger major negative effects on economic growth and wealth. Systemic risks could also arise from the financial system's specific structural features and vulnerabilities that can reinforce the likelihood of risk materialisation or related costs.
The national macroprudential authority in Finland is the Financial Supervisory Authority (FIN-FSA), and the FIN-FSA Board takes the decisions on the use of macroprudential tools. The decisions are based on a macroprudential analysis, made in close cooperation by the Bank of Finland, the Financial Supervisory Authority and the Ministry of Finance.
In addition, the European Central Bank (ECB) is mandated to carry out specifically defined macroprudential tasks within the framework of the Single Supervisory Mechanism (SSM). At Union level, the European Systemic Risk Board (ESRB) issues recommendations on the organisation of macroprudential policy in the European Union.