However, according to the Financial Supervisory Authority, the growing dependence on short-term market funding increases the solvency risks of Finnish banks.
European the tightening of the central bank's (EKP) monetary policy and the rise in market interest rates increase the dependence of Finnish banks on market funding, says the Financial Supervisory Authority (Fiva).
In a review published on Tuesday, Fiva estimates that dependence, especially on short-term market funding, increases banks' vulnerability to market disturbances.
According to the banking supervisor, the liquidity situation of Finnish banks has remained stable despite the increased risks in the operating environment.
“However, the strong dependence on market funding and the shortening of funding increase the vulnerability of Finnish banks to disruptions in the financial markets,” says the head of the Financial Supervisory Authority Tero Kurenmaa in the agency's bulletin.
Monetary policy the tightening has reduced the amount of central bank liquidity available to European banks and increased the cost of raising funds. At the same time, the deposit base of monetary institutions in the euro area has shrunk.
Because of this, banks have had to obtain even more funding from the market. According to Fiva, the issuances increased significantly during the last year compared to previous years.
According to Fiva, the liquidity of domestic banks has improved over the past year, and the banks' liquidity situation is supported by the high quality of liquid reserves.
Finnish banks' short-term liquidity is also stronger than the European average, says Fiva.
Finnish banks however, growing dependence on short-term wholesale funding increases liquidity risks, as short-term wholesale funding can quickly be jeopardized in a crisis situation.
According to the stress tests conducted by Fiva, the liquidity reserves of Finnish banks are of good quality and they are sufficient to cover the outflow of funds in accordance with the requirements in a 30-day stress situation.
The tests still show that the adequacy of Finnish banks' reserves in both a severe sudden and prolonged liquidity crisis is limited.
The limited adequacy of liquidity is due to the large share of wholesale funding and its short maturity. In addition, credit commitments granted to companies and other deposits prone to outflows affect the limitation.
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