Bank failures are not uncommon in the ever-changing global financial landscape. For international bank creditors, understanding the legal framework and mechanisms in place to address bank failures in a foreign jurisdiction is crucial to safeguard their interests. Finland’s banking sector is regulated by the Finnish Financial Supervisory Authority (FIN-FSA), which enforces and oversees the implementation of national and European Union (EU) regulations. The key legal framework governing bank failures includes the Act on Credit Institutions, the Act on the Financial Stability Authority, and the EU Bank Recovery and Resolution Directive (BRRD).

A bank failure in Finland is defined as a situation where a credit institution is unable to meet its financial obligations, is at risk of insolvency, or has breached regulatory requirements to an extent that jeopardizes its financial stability. The FIN-FSA, in cooperation with the European Central Bank (ECB) under the Single Supervisory Mechanism (SSM), determines bank failures based on the institution’s capital adequacy, asset quality, and liquidity position.

The FIN-FSA, in coordination with the ECB, has the legal mandate to conclude a bank’s failure or likelihood of failure. This conclusion is made based on a thorough assessment of the bank’s financial condition, compliance with regulatory requirements, and ability to address identified shortcomings. If the bank is deemed unable to restore its financial health, the FIN-FSA will declare the bank as failing or likely to fail.

After a bank failure is concluded, the Finnish Financial Stability Authority (FFSA) takes over as the resolution authority, executing resolution measures in line with the BRRD framework. The most common reasons for bank failures in Finland include poor risk management, inadequate capital buffers, liquidity crises, and economic downturns.

The FIN-FSA and the ECB jointly supervise Finnish banks, ensuring compliance with regulatory requirements and monitoring risks to financial stability. Resolution planning involves identifying critical functions and preparing strategies for preserving these functions during financial distress. This ensures the continuation of the organization and minimizes the impact on the financial system and taxpayers.

When a bank fails in Finland, the FFSA, as the resolution authority, is responsible for executing resolution measures. The available options for failed banks include reorganization, recapitalization, restructuring, or dissolution. Tools such as the sale of business, bridge bank, and asset separation contribute to an efficient resolution by enabling the transfer of assets and liabilities, maintaining continuity of services, and allowing the disposal of non-core assets.

In Finland, account deposits and creditor interests are protected by the Finnish Deposit Guarantee Fund (FDGF), which is governed by the Act on the Deposit Guarantee Fund. The FDGF covers deposits up to €100,000 per depositor per bank. In the event of a bank failure, depositors and creditors are protected from losses within the coverage limits.

To ensure non-viable firms exit the market in an orderly way, the FIN-FSA, the ECB, and the FFSA work together to monitor the financial health of banks and implement resolution measures when necessary. This coordinated approach ensures that the risks to financial stability are minimized, and the impact on other market participants is contained.

Bank liquidation in Finland is regulated by the Act on Credit Institutions and the Act on the Financial Stability Authority. If a failed bank is deemed non-viable and resolution measures are not considered appropriate, the FFSA can initiate the liquidation process. During liquidation, the bank’s assets are sold, and the proceeds are used to settle outstanding liabilities, following a specific hierarchy of claims established by law.