Bank of Finland Bulletin: Articles on economy by Bank of Finland 2/2015

Editorial: Exceptional condition of economy and
financial markets poses unforeseen risks 4

Financial stability assessment: Household debt and banking
sector concentration pose risks for Finland 7

THREATS TO FINANCIAL STABILITY RELATING TO ECONOMIC AND CREDIT CYCLES
Household debt – how much is too much? 17
One country, many housing markets 22
Banks’ share in corporate finance has increased in Finland 27
Early warning indicators of banking crises 33

THREATS TO FINANCIAL STABILITY RELATING TO FINANCIAL INSTITUTIONS
Concentrated banking system amplifies banking crises 37
Insurance companies as major investors are
a potential source of systemic risk 42
Major changes underway in European banking sector 46

THREATS TO FINANCIAL STABILITY DERIVING FROM THE INTERNATIONAL ECONOMY AND FINANCIAL SYSTEM
Overheating of global financial market could also have
a destabilising impact on Finland 51
Low interest rates provide a stimulus but can also create risks 55
Structural changes in banking have paved the way for shadow banks 61

THREATS TO FINANCIAL STABILITY RELATING TO THE FINANCIAL MARKET INFRASTRUCTURE
Could a cyber attack lead to financial crisis? 67
Better preparations required for disruptions in basic banking services 70
A new era in securities settlement and custody markets 73

FINANCIAL SYSTEM POLICY
A broader set of tools needed to prevent financial crises 78
Tightening regulation has only a limited impact on loan margins 82
Housing loan risk weights affect banks’ capital adequacy 86

Bank of Finland Financial Stability Report