Banking and finance play a crucial role in today’s global economy, facilitating trade, investment, and economic growth. Banks manage the circulation of money, accept deposits, provide loans, and offer other financial services. In the process, banks face various risks, such as credit, market, liquidity, and operational risks, which must be mitigated through sound banking principles and regulation.

Banks operate on the principles of liquidity, solvency, and profitability. They aim to maintain an optimal balance between these principles while managing the associated risks. Credit risk is the potential of a borrower to default on a loan, while market risk is the risk of loss from fluctuations in market variables, such as interest rates and currency values. Liquidity risk refers to a bank’s inability to meet its short-term obligations, and operational risk is the potential for loss due to inadequate or failed internal processes, systems, or personnel.

In Finnish law, bank account holders are considered the legal owners of the funds in their accounts. Banks, as intermediaries, are responsible for safeguarding these funds, ensuring compliance with applicable laws, and facilitating transactions on behalf of their customers. Account holders have the right to access their funds, manage transactions, and receive regular account statements.

Banking regulation is critical to ensuring the stability and integrity of the financial system. It helps protect depositors, maintain confidence in the banking sector, and prevent systemic risks that could jeopardize the economy. Regulatory frameworks typically consist of laws, rules, and supervisory authorities to enforce compliance, promote transparency, and encourage responsible banking practices.

Banking and Finance in Finland

Finland boasts a robust and stable banking sector, dominated by a few large banking groups with extensive networks across the country. Finnish banks are known for their conservative lending practices, strong capitalization, and commitment to innovation, which contribute to their resilience and competitiveness.

The Bank of Finland, the country’s central bank, plays a pivotal role in maintaining the stability of the Finnish financial system, conducting monetary policy, and overseeing payment systems. It also participates in the formulation and implementation of EU banking regulation as a member of the European System of Central Banks.

Finnish Banking Law

Credit Institutions Act (610/2014): The Credit Institutions Act regulates the licensing, operation, and supervision of credit institutions in Finland. It stipulates the capital adequacy requirements, governance structures, risk management, and reporting obligations for banks.

Act on the Financial Supervisory Authority (878/2008): This Act establishes the Financial Supervisory Authority (FIN-FSA), which is responsible for the supervision and regulation of the Finnish financial sector, including banks, insurance companies, and other financial institutions.

Act on the Resolution of Credit Institutions and Investment Firms (1194/2014): This Act outlines the resolution framework for failing banks and investment firms in Finland, including the tools and powers available to the resolution authority to prevent systemic risks and protect depositors.

Deposit Guarantee Act (580/2008): The Deposit Guarantee Act establishes a deposit guarantee scheme to protect depositors in the event of a bank failure. It guarantees the repayment of deposits up to €100,000 per depositor per bank

Administrative Sanctions and Regulatory Enforcement

Domestic enforcement in Finland primarily falls under the purview of the FIN-FSA. The authority is empowered to impose administrative sanctions, such as warnings, fines, and even license withdrawals for banks that violate regulations. Moreover, the FIN-FSA can also initiate criminal proceedings in cases of severe misconduct or non-compliance. In addition to domestic enforcement, Finnish banks are subject to international regulatory frameworks, such as the European Union’s (EU) Single Supervisory Mechanism and the Basel III Accord. The EU’s supervisory framework facilitates cross-border cooperation among member states, while the Basel III Accord sets global standards for capital, liquidity, and leverage requirements to enhance the stability of the international banking system.

Bank Insolvency Procedures in Finland

In Finland, the insolvency procedures for banks are governed by the Act on the Resolution of Credit Institutions and Investment Firms. When a bank is deemed likely to fail, the FIN-FSA, in cooperation with the Single Resolution Board (SRB) at the EU level, takes the necessary measures to resolve the situation. Resolution tools include the sale of the bank’s assets, the transfer of its critical functions to another institution, and the establishment of a bridge institution to maintain essential services.

If a resolution is not feasible or in the public interest, the bank may be subject to bankruptcy proceedings under the Bankruptcy Act (120/2004). In such cases, a bankruptcy estate is created, and an administrator is appointed to liquidate the bank’s assets and distribute the proceeds among creditors according to their priority.

Protecting Creditors Impacted by Bank Failure in Finland

International bank creditors concerned about losing money in Finnish bank failures can rely on the country’s robust legal framework for protection. The Deposit Guarantee Act guarantees the repayment of deposits up to €100,000 per depositor per bank, which provides a safety net for retail depositors. In addition, unsecured creditors, such as bondholders and other wholesale funding providers, can benefit from the resolution tools and measures provided by the Act on the Resolution of Credit Institutions and Investment Firms.

Furthermore, creditors can seek recourse through Finnish courts in cases of bank insolvency, as the country’s legal system is well-regarded for its efficiency and impartiality. In summary, Finland’s comprehensive banking law framework, coupled with its stable and well-regulated financial sector, offers significant protection to international bank creditors concerned about potential bank failures.