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Macroprudential

Macroprudential decisions

The FIN-FSA Board is responsible for taking macroprudential policy decisions. Decisions are drafted in broad cooperation between authorities, and the FIN-FSA consults with the Bank of Finland, the Ministry of Finance and the Ministry of Social Affairs and Health prior to taking such decisions. In addition, the FIN-FSA consults with financial sector representatives regarding the principles it applies to macroprudential decision-making.

Decisions on the activation of macroprudential instruments are taken on a quarterly basis, as the use of certain macroprudential tools, such as the imposition of a countercyclical capital buffer requirement mandated by chapter 10, section 4 of the Credit Institutions Act, and indicators and data underlying macroprudential analysis are normally updated quarterly. The use of certain macroprudential instruments, for example the application of the G-SII/B, O-SII and systemic risk buffers, must be assessed annually.

The Credit Institutions Act and the rationale for the Act emphasise the role of broad cooperation between authorities in order to ensure that all aspects related to the use of macroprudential instruments are taken into account. As a further safeguard, the Bank of Finland and the Ministry of Finance are entitled to require, at any time, that the FIN-FSA Board discuss the setting or changing of the countercyclical capital buffer requirement. Likewise, the European Systemic Risk Board may issue a recommendation or warning that needs to be dealt with by the FIN-FSA Board.

The FIN-FSA notifies, as a rule, the European Commission, the European Systemic Risk Board (ESRB), the European Banking Authority (EBA) and the relevant macroprudential authorities of other Member States of its pending macroprudential decisions, to be made in compliance with the prudential regulations, one month prior to the publication of the decisions.

If a national macroprudential authority intends to activate a macroprudential tool it shall notify its intention to the ECB ten working days prior to taking such a decision, in accordance with Chapter II Article 5 of the SSM Regulation and Part VIII of the SSM Framework Regulation. The national macroprudential authority shall also inform the ECB of potential macroprudential or systemic risks to the financial system and to specify the details of the intended macroprudential tool. If the ECB objects to the intended measure it shall state its reasons to the national authority within five working days after the day of receipt of the notification of the intended measure. The national authority must duly consider the ECB’s reasons when deciding whether to activate the intended macroprudential tool.

This procedure also applies in reverse when the ECB intends to use a macroprudential tool on its own initiative. In such a case, the ECB must notify the national authority of its intention according to the same procedures and duly consider the national authority’s views prior to taking a decision.

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Macroprudential instruments

Macroprudential instruments (or tools) refer to macroprudential measures, within the FIN-FSA’s powers, aimed at preventing the realisation of systemic risks and mitigating the effects of these risks. Macroprudential instruments are supported by recommendations and other communications relating to macroprudential supervision.

The macroprudential toolkit consists of various options for action, since systemic risks can be cyclical or structural in nature, and the underlying factors can be complex. Some macroprudential instruments focus on credit institutions’ capital adequacy levels, while others impose restrictions on lines of business (particularly the maximum loan-to-value ratio for housing loans). A mix of different instruments ensures that, according to the particular circumstances, the most appropriate macroprudential tool can be used to prevent systemic risk and strengthen the risk resilience of credit institutions.

Use of macroprudential instruments is specified in either the national Credit Institutions Act or EU legislation (EU Capital Requirements Regulation and Capital Requirements Directive). The use of macroprudential instruments is further guided by the above intermediate objectives of macroprudential policy recommended by the European Systemic Risk Board, risk indicators that signal the build-up of systemic risk, and macroprudential analyses of the Finnish financial system done in cooperation between authorities on the basis of these indicators.

Foreign macroprudential decisions

Application of foreign macroprudential decisions to Finnish credit institutions usually requires that a corresponding macroprudential decision be taken in Finland. Foreign macroprudential decisions are also applied to Finnish credit institutions when they operate in the countries in question. Broad reciprocation of macroprudential decisions ensures achievement of the objectives of macroprudential decisions and non-discriminatory treatment of credit institutions.

Foreign macroprudential decisions can be made applicable to Finnish credit institutions by using instruments included in the Finnish macroprudential toolkit. A decision on reciprocation of foreign macroprudential decisions may concern macroprudential instruments adopted by both other EEA Member States and third countries. The European Systemic Risk Board (ESRB) has issued a recommendation on the reciprocity of macroprudential decisions (ESRB/2015/2).

As distinct from the above principle, decisions on countercyclical capital buffer requirements belong to directly applicable macroprudential tools. Decisions taken by foreign authorities on countercyclical capital buffer requirements are directly applicable to Finnish credit institutions, without any national decision in-so-far as the requirement is not higher than 2.5%.

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