Keeping Financial Stability on the Horizon: Addressing Emerging Risks in the Finnish and European Financial Systems

Despite the increased risks in the international economy and financial system due to geopolitical tensions and conflicts such as the war in Ukraine and the situation in Gaza, the Finnish financial system has remained stable. The Bank of Finland estimates that the risk resistance of the Finnish financial system has remained good, although new threats to stability have emerged.

Despite this stability, domestic risks have increased, particularly in the housing and real estate markets. The prices of old apartments have fallen, leading to a decrease in sales and construction of new apartments. This has resulted in increased bankruptcies in the construction industry, posing credit risks to banks. However, household indebtedness has decreased, which has mitigated some of these risks.

The Bank of Finland highlights that it is crucial to prepare for new and unpredictable threats such as those posed by digitalization and climate change. The digitization of the financial industry creates opportunities but also increases the risk of false information and information influence. Climate change can also destabilize the financial system through natural disasters and loss of nature.

To address these emerging risks, careful planning and development of financial regulation are necessary. European companies are encouraged to seek more versatile ways to finance their investments by creating a unified and functioning capital market in the EU. This is vital for Europe to remain competitive and protect against disturbances in the financial system.

In conclusion, despite increased risks from both domestic and international sources, the Finnish financial system has managed to maintain stability through proactive planning, regulation, and diversification efforts. It is essential that we continue to address emerging threats from digitalization and climate change while promoting a more robust financial market across Europe.