Macroprudential decision: FIN-FSA decides there will be no increase to countercyclical capital buffer requirement applicable to banks, nor restriction to maximum loan-to-value ratio for residential mortgage loans
The Board of the Financial Supervisory Authority (FIN-FSA) has decided not to increase the countercyclical capital buffer requirement (variable capital add-on) applicable to banks; the requirement will remain at zero until further notice. According to the assessment of the FIN-FSA, there is no reason to reduce the maximum loan-to-value ratio for residential mortgage loans or to restrict the collateral to be taken into account.
In November 2016, the European Systemic Risk Board (ESRB) issued a warning to Finland on the already high and increasing level of household indebtedness. The ESRB pointed out that this indebtedness may constitute a risk for the stability of the financial system and for the development of the real economy over the medium term.
‘Besides the current toolkit, in order to restrict household debt accumulation, it would be advisable to consider the development of macroprudential instruments that directly impact household borrowing. This could be done by limiting the loan amount relative to income,’ notes Pentti Hakkarainen, Chairman of the Board of the FIN-FSA.
The countercyclical capital buffer requirement (variable capital add-on) referred to in chapter 10, section 4 of the Credit Institutions Act will not be increased, but will remain at the current level of 0.0%. The value of the credit-to-GDP gap, used as the primary justification for the assessment, gives a reference value of 0.0% for the countercyclical capital buffer requirement. The gap has shown a downward trend since 2010, and the most recent observation is the smallest since 2003. Nor are supplementary risk indicators signalling such an increase in financial system vulnerabilities as would necessitate a higher countercyclical capital buffer requirement.
The Board of the FIN-FSA judged that there is no need to tighten the maximum loan-to-value ratio for residential mortgage loans from its basic level, as no signs of an exceptional increase in risks to financial stability are currently in sight. The maximum loan-to-value ratio will therefore remain at 90% (for purchase of a first home, 95%) of the current value of collateral.
The FIN-FSA is continuing preparations for raising the minimum level of risk weights on residential mortgage loans. Implementation is scheduled for July 2017.
The Board of the FIN-FSA made its decision upon proposal by the Director General and after consultation with the Bank of Finland, the Ministry of Finance and the Ministry of Social Affairs and Health. In accordance with the regulations governing the Single Supervisory Mechanism, the European Central Bank was also consulted in respect of the decision.
For further information, please contact
Pentti Hakkarainen, Chairman of the Board of the Financial Supervisory Authority, tel. +358 10 831 2002.
- Board decision (pdf)
- Proposal by the Director General of the FIN-FSA circulated for comment (pdf, in Finnish)
- Opinions (in Finnish)
- Bank of Finland (pdf)
- Ministry of Finance (pdf)
- Ministry of Social Affairs and Health (pdf)