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Business and Economics > Finance: General

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Cover IMF Working Papers
Aging Gracefully: Steering the Banking Sector through Demographic Shifts
Patrick A. Imam
and
Christian Schmieder
We analyze how aging populations might affect the stability of banking systems through changes in the balance sheets and risk preferences of banks over the period 2000-2022. While the anticipated decline in maturity transformation due to aging hints at a possible reduction in risk exposure, an older population may propel banks towards yield-seeking behaviors, offsetting the diminishing prominence of conventional lending operations. Through a comprehensive examination of advanced economies over the past two decades, our findings reveal a general enhancement in bank stability correlating with the aging of populations. However, the adaptive responses of banks to these demographic changes are potentially introducing tail risks. Given the rapid global shift towards aging societies, our analysis highlights the critical need for policymakers to be proactive and vigilant. This is particularly pertinent considering historical precedents where periods of relative stability have often been harbingers of emerging risks.
Keywords:
Aging; Demographics; Bank risk-taking; Financial Stability; IMF working paper No. 24/118; tail risk; risk preference; stability risk; solvency profile; bank assets; Commercial banks; Bank soundness; Loans; Global
Cover IMF Staff Country Reports
Nordic-Baltic Regional Report: Technical Assistance Report-Nordic-Baltic Technical Assistance Project Financial Flows Analysis, AML/CFT Supervision, and Financial Stability
International Monetary Fund. Legal Dept.
This paper presents a regional report on Nordic-Baltic technical assistance project: financial flows analysis, Anti-Money Laundering and combating the Financing of Terrorism (AML/CFT) Supervision, and Financial Stability. The purpose of the project is to conduct an analysis of cross-border ML threats and vulnerabilities in the Nordic-Baltic region—encompassing Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway, and Sweden (the Nordic-Baltic Constituency or NBC)—and issue a final report containing recommendations for mitigating the potential risks. The financial flows analysis presented in this report is based on the IMF staff’s analysis of cross-border payments data. Six out of the eight Nordic-Baltic countries have seen an increase in aggregate flows since 2013. Monitoring cross-border financial flows provides countries with a deeper understanding of their external ML threat environment and evolving cross-border related risks they are facing. Leveraging broader analysis of ML/TF cross-border risk, the Nordic-Baltic countries should develop their own understanding of higher-risk countries reflecting country-specific ML/TF threats.
Keywords:
TF risk assessment; colleges participation; TF risk; EU Anti-Money Laundering Authority; supervisory cooperation; information Sharin; Anti-money laundering and combating the financing of terrorism (AML/CFT); Virtual currencies; Correspondent banking; Internal controls; Financial sector stability; Baltics; Global
Cover IMF Staff Country Reports
Sweden: Financial Sector Assessment Program–Technical Note on Crisis Management and Resolution
International Monetary Fund. Monetary and Capital Markets Department
This paper discusses the technical note on Crisis Management and Resolution for the Sweden financial sector assessment program. The Swedish financial safety net and crisis management arrangements rest on sound foundations and have been strengthened further by legislative and policy reforms in the financial sector. Developing crisis management capacity within and between agencies is required to ensure credible crisis management plans, including for bank resolution. On preparing for future bank failure, banks are yet to remove known barriers to resolvability, including reporting capabilities on resolution valuation, funding in resolution, and operational services dependencies. The Riksbank should improve market transparency by publishing a policy framework describing the central bank’s lender of last resort bilateral liquidity facilities’ capability for crisis management purposes, including funding in resolution. The Ministry of Finance should work to improve the operational independence of the SNDO by updating its funding arrangements.
Keywords:
implementing resolution; EU bank recovery; capital markets department; crisis simulation exercise; bank Resolvability; EU Economic; authority crisis coordination; Crisis management; Bank resolution framework; Bank resolution; Crisis resolution; Crisis management framework; Baltics; Global
Cover IMF Staff Country Reports
Sweden: Financial Sector Assessment Program–Technical Note on Oversight and Supervision of Financial Market Infrastructures and Selected Issues in Payment Systems
International Monetary Fund. Monetary and Capital Markets Department
This technical note discusses Sweden’s Oversight and Supervision of Financial Market Infrastructures and Selected Issues in Payment Systems. Digitalization of payments has been rising steadily in Sweden. In addition to the continuous digitalization of payments, Sweden is undergoing a major overhaul of its payment infrastructure. Outsourcing of critical services to private companies is widespread and is going to increase in the Swedish financial sector. The review results of responsibilities suggest an effective supervision and oversight framework supported by sound legal basis, sufficient resources, and proper domestic and foreign cooperation between the authorities. The authorities should establish cooperative oversight and supervisory arrangements with P27 participating countries. While joining the Eurosystem operated platforms will bring obvious benefits for Swedish financial sector, it may also create challenges related to governance, risk management, representation of Swedish interests and oversight. The authorities are encouraged to establish and maintain a central register of critical service providers and outsourced third party arrangements.
Keywords:
Riksbank's oversight function; oversight responsibility; oversight arrangement; oversight activity; oversight framework; supervision of financial market infrastructure; oversight power; PFM information systems; Principles for Financial Market Infrastructures; Payment systems; Operational risk; Financial market infrastructure; Europe
Cover IMF Staff Country Reports
Finland: Financial Sector Assessment Program-Technical Note on Non-Bank Financial Intermediation and Pension Insurance Companies
International Monetary Fund. Monetary and Capital Markets Department
This technical note evaluates non-bank financial institutions (NBFI) as a sector in Finland, with a special focus on the pension insurance companies (PIC). Pensions, including the PICs and fund managers, are the most significant parts of the NBFI sector, followed by insurance. Market participants value their relationship with the Finnish Financial Supervisory Authority, particularly during crisis periods, but noted that extra resources and expertise would be useful for the NBFI sector. The Financial Sector Assessment Program analysis reveals a history of procyclical and herding behavior in the PIC portfolios due to the substance and perception of the solvency regulations, which drive the behavior of market participants. Discussion on further reforms to the 2017 solvency laws should focus on enhancing the long-term purpose of the PICs to generate returns—to the benefit of all social partners and Finnish citizens. Even though liquidity risks are low, a liquidity regulation should be developed so that PICs have sufficient buffers for extreme events.
Keywords:
PIC equity investment; PIC asset allocation; Pension insurance company; pension insurance company Market; FSAP's finding; finance disclosure Regulation; investment allocation; Pension spending; Solvency; Pensions; Insurance companies; Insurance; Global; Europe
Cover IMF Staff Country Reports
Finland: Financial Sector Assessment Program-Technical Note on Macroprudential Policy Framework and Tools
International Monetary Fund. Monetary and Capital Markets Department
This technical note highlights Macroprudential Policy Framework and Tools for the Finland Financial Sector Assessment Program. The institutional framework for macroprudential policy in Finland, formalized in 2014, is mostly in line with the IMF guidance for effective macroprudential policymaking. Systemic risk monitoring is well organized and conducted on a timely basis, especially in the household sector. The sustained increase in residential housing loans is of important systemic concern, and the authorities have taken measures to contain relevant risks. The ongoing development of Finland’s positive credit register will provide microdata on household indebtedness and income, which are useful to analyse vulnerabilities and to calibrate policy, and may be useful to authorities when considering the distributional consequences of macroprudential policies. Moreover, the analysis of corporate sector vulnerabilities should be as developed as that of household sector vulnerabilities, and it would be beneficial to address related data gaps.
Keywords:
FSAP's finding; FIN-FSA staff; liquidity condition; Finland FSAP; MACROPRUDENTIAL POLICY FRAMEWORK; Macroprudential policy; Systemic risk assessment; Financial sector stability; Macroprudential policy instruments; Loans; Baltics; Global
Cover IMF Staff Country Reports
Finland: Financial Sector Assessment Program-Technical Note on Regulation and Supervision of Less Significant Institutions
International Monetary Fund. Monetary and Capital Markets Department
This technical note highlights Regulation and Supervision of Less Significant Institutions for the Finland Financial Sector Assessment Program. Finnish banks’ financial indicators remained strong despite the pandemic. The authorities made good progress on the implementation of the recommendations of the 2016 Basel Core Principles assessment. However, the legal framework in Finland limits Finnish Financial Supervisory Authority’s (FIN-FSA) power to issue binding regulations. However, the assessment revealed that availability of resources is a challenge for the FIN-FSA. The supervisory approach and tools of the FIN-FSA improved conspicuously but there is room for further improvement. It is important for the FIN-FSA to complete the necessary work for supervisory boards to be covered by the regulatory and supervisory framework.
Keywords:
Finland FSAP; FSAP's finding; banking supervision department; organization structure of the FIN-FSA; Tier 1; Credit; Loans; Bank supervision; Credit risk; Financial Sector Assessment Program; Europe; Global
Cover IMF Staff Country Reports
Finland: Financial Sector Assessment Program-Technical Note on Crisis Management and Resolution
International Monetary Fund. Monetary and Capital Markets Department
This technical note focuses on Crisis Management and Resolution for the Finland Financial Sector Assessment Program. These recent developments reinforce the need for full operational readiness in the Finnish authorities’ crisis management arrangements. The authorities have made progress in developing crisis management capabilities and procedures, as well as gathering practical experience from recent events. Enhancing crisis management capacity within and between authorities is essential to ensure effective implementation in a coordinated manner of agreed crisis management plans, including for bank resolution. The authorities should increase the centralization of the coordination of the authorities’ respective preparation for, as well as management of, future crises in the Crisis Management Cooperation Group. On deposit guarantee arrangements, the Finnish Financial Stability Authority Deposit Guarantee Fund should ensure that it has sufficient funds under its direct control to ensure its financial autonomy, including through strengthened backstop funding arrangements.
Keywords:
implementing Resolution tool; crisis simulation exercise; EU bank recovery; resolution planning; C. authority crisis management capability; Crisis management; Bank resolution framework; Bank resolution; Crisis resolution; Baltics; Global
Cover IMF Staff Country Reports
Finland: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis and Stress Testing
International Monetary Fund. Monetary and Capital Markets Department
This technical note discusses Systemic Risk Analysis and Stress Testing for the Finland Financial Sector Assessment Program. The assessment is based on stress tests, which simulate the health of Finnish banks under a severe yet plausible adverse scenario. The scenario includes global and regional inflationary pressures, monetary policy tightness, financial market turmoil, and a major slowdown of economic activity. The exercises covered four significant institutions, and three less significant institutions representing more than 93 percent of total banking assets. Four types of stress test exercises have been performed. A top-down solvency stress test, a liquidity stress test, a wholesale funding cost stress test, and a contagion and interconnectedness stress test. The latter has been focused on both domestic banking interconnectedness, as well as the interconnectedness of the Finnish banking sector with cross-border counterparties. The analysis indicates that the Finnish banking system appears resilient to severe macrofinancial shocks but remains vulnerable to liquidity shocks.
Keywords:
error correction Model; risk projection; interest income; liquidity coverage Analysis; sensitivity analysis result; Stress testing; Commercial banks; Liquidity requirements; Solvency stress testing; Credit risk; Global
Cover IMF Staff Country Reports
Finland: Financial System Stability Assessment
International Monetary Fund. European Dept.
This paper presents Finland’s Financial System Stability Assessment report. Finland has further improved the regulation and supervision of its financial sector since the 2016 Financial Sector Assessment Program, in part driven by European legislation and institutions. The size of the banking sector increased significantly in 2018 with the redomicilation of Nordea. Finland weathered the coronavirus disease 2019 pandemic well relative to other economies, with fiscal support and interventions from the authorities. However, Finland is now navigating a weaker economic outlook given the war in Ukraine and ensuing energy crisis, despite limited direct financial exposures to Russia. Risks to financial stability come from a large banking sector, which is highly concentrated and dominated by a few institutions, and is interconnected with other financial systems in the Nordic region. Stress tests indicate that the banking system appears resilient to severe macro-financial shocks but remains vulnerable to liquidity shocks. Resolution and crisis management should be supported by greater coordination of authorities’ preparation and management of future crises.
Keywords:
MoSAH FIN-FSA; PIC solvency regulation; independence of the FIN-FSA; SREP assessment; FIN-FSA's independence; B. banking sector resilience; Financial Sector Assessment Program; Macroprudential policy; Credit; Financial sector stability; Baltics; Global