Bank of Finland says Finland’s financial system remains stable but flags geopolitical cyber and housing market risks

The Bank of Finland has published its annual assessment of Finland’s financial system, concluding that the system has remained stable despite periodic market shocks from international conflicts and a housing market slowdown linked to higher interest rates. The assessment stresses that strong banking regulation is central to preserving the resilience of Finnish banks and borrowers and to ensuring banks can keep lending through periods of stress. The main risks identified are a weaker economic outlook driven by geopolitical tensions, greater uncertainty weighing on household consumption and business investment, and rising cyber and hybrid threats in the financial sector. On the domestic side, the Bank of Finland points to an unusually long housing market downturn, with falling prices for existing dwellings and slow sales, while higher rates are putting pressure particularly on heavily indebted households, real estate investors and housing corporations with substantial variable rate debt. It warns that looser rules for mortgages and housing company loans due to enter into force in the summer may do little to revive sales but could increase the housing market’s vulnerability to future shocks. The assessment also argues that deeper European capital markets would broaden funding sources for governments, banks and businesses and improve cross-border investment opportunities. It supports deeper European cooperation that includes a common deposit insurance scheme to replace national schemes, and calls for Europe to reduce its dependence on major ICT service providers located outside Europe in order to lower political and operational risks.