Systemic risk buffer protecting the banking sector under difficult conditions

Abstract

The systemic risk buffer became available in Finland from the beginning of 2018. The systemic risk buffer is an additional capital requirement that may be imposed on credit institutions on the basis of the financial system's structural risks. The buffer may be up to 5% of the total risk exposure. Its purpose is to strengthen the credit institution sector's capital adequacy in case of structural risks and vulnerabilities affecting the financial system. Sufficient capitalisation improves credit institutions’ ability to operate and to intermediate finance under difficult conditions. According to a preliminary estimate, Finland's financial system has greater structural risks than other EU countries, which is the statutory requirement for imposing a systemic risk buffer.