Blog: The eight-year old Financial Stability Authority´s mandate is still interesting and there is important work to be pursued

I have been enjoying my last weeks in office as Director General of the Finnish Financial Stability Authority (RVV). My work at the Authority started at the beginning of May 2015 and will end shortly, as I am heading for Brussels to assume the duties of Member of the Board and Director of Resolution Planning and Decisions in the RVV’s parent organisation the Single Resolution Board (SRB). 

My time at the RVV has been both rewarding and demanding. The first years of the Authority starting from scratch were meant to establish a basis for the work both within the Authority and in fields of cooperation. It quite soon became clear that, not just as regards setting up the Authority, but in terms of our two main tasks, resolution planning and administrating a deposit guarantee scheme, we were going to be doing something very new. It sometimes felt like a very challenging mandate, something quite revolutionary. Today I realise that the Authority’s mission and the operational targets set were achievable.

International Monetary Fund (IMF) visited Finland recently and carried out their regular assessment of the vulnerabilities of the financial sector.  The Finnish resolution mechanism and deposit guarantee scheme and the legislation on them won praise from the IMF. There was room for improvement mainly in areas where work is already in progress or where Finland would need to follow developments in the rest of the euro area. The IMF report is confirmation of the fact that the integrated one-authority model for maintaining the bank resolution system, deposit guarantee scheme and National Emergency Account System established for Finland has proven effective, and it is on this basis that I believe that my successor may deservedly develop the entire system further.

The European solution is the viable option

Thanks to the new European resolution mechanism established as a result of the financial crisis and the debt crisis in the euro area, however, the RVV did not have to work alone. The Single Resolution Mechanism, a network made up of the central euro area Single Resolution Board (SRB) and 21 National Resolution Authorities in Eurozone countries and Bulgaria, has been a great help in the development of the Authority’s competence. We have been developing resolution planning and our crisis management capability all this time in close cooperation with the authorities in the euro area. 

Cooperation has guaranteed the speedy though balanced progress of our development work and our ability to benefit from the knowledge and skills of the other authorities and best practices, and has provided us with the scope we need to interpret issues as they apply to the Finnish operational environment, in line with the principle of proportionality. The EU structure, I think, has developed and functioned splendidly, has been of benefit to all those involved, and, above all, has served to guarantee financial stability in the euro area and safeguarded the position of the taxpayers.  

There are a few cases in practice that have already strengthened the credibility of the structure. For example in the spring 2022, the Russian-owned Sberbank Group suffered a liquidity crisis and the SRB placed the subsidiaries of the Sberbank Europe Group in Slovenia and Croatia under resolution. The shares of each bank were sold to a local bank. The liquidation proceedings for the bank in the Group located in Austria were carried out in accordance with national legislation, and depositors’ funds were repaid out of the Austrian Deposit Guarantee Fund. The quick response in this case was due to robust cross-border cooperation over several EU countries. Financial stability in Europe was preserved, depositors were protected and no taxpayers’ money was spent. This case shows that the new powers given to the authorities make it possible to deal with resolution cases. There is also a general facility in existence for covering losses by means of a bail-in, i.e. cutting liabilities. 

The Nordic banking groups function on a widespread basis outside the banking union, and the national markets are interconnected. Accordingly, the official Nordic-Baltic cooperation is also important for the RVV.  Pan-European cooperation is promoted and made closer under the European Banking Authority (EBA), through its numerous working groups and committees. And, although the deposit guarantee schemes are still completely national, close cross-border cooperation is nowadays also an essential resource for them.  It gains support not just from the work done by the EBA but also from the input of the European Forum of Deposit Insurers (EFDI). For myself, it is precisely this sense of Europeanness at the RVV together with a vision of a stabler, more efficient EU banking sector that have been an important source of motivation and strength.

The RVV and how it became the national spearhead for resolution and bank guarantees 

During my directorship there have been various guiding principles introduced, the importance of which are emphasised to all new RVV employees.  Working together and learning from others are among the most important of these. I still think it is always important for the Authority’s development and effective operation to ensure that we can learn from others at home or from our numerous EU partners, who are in the same boat. Fortunately, there is more practical experience of resolution and deposit guarantee situations in other EU countries than in Finland. 

Leaving the Authority, I am convinced that there are high levels of expertise at the RVV in matters related to resolution and deposit guarantees. I am also convinced that the solution in Finland at the time for an integrated resolution and deposit guarantee authority was not only progressive, but was the only right one. The synergy from which the entire sector benefits is phenomenal. There is also social benefit to be derived from the responsibility for centralised resolution and deposit guarantee matters and the competence that goes with them in the shape of the newly established preparedness system for the payment system. I will say a few words about it later. 
Building cooperation based on trust has also been an important goal as Director General. It is important to make every effort to act consistently, in a spirit of cooperation, and openly with banks and other stakeholders. If the RVV is to be relied upon in times of crisis, when things are going well it is vital to ensure that the structures for cooperation and the flow of information are in place and to clarify what would need to be done in a crisis. Alike similar is to demonstrate that the RVV has both the ability and the leadership to take the necessary actions when the situation calls for it. 

Working with the Finnish banks has always been a constructive exercise. Today I would say that the banks’ loss-absorbing capacity is good and that they have significantly improved as regards their capabilities for supporting the implementation of resolution measures.  There has also been good progress made in improving the viability of the deposit guarantee scheme in close cooperation with the banks. An important milestone was reached in 2019, when we were able to announce the fact that the RVV’s deposit guarantee payment scheme was capable of paying out compensations over seven working days completely digitally. The annual stress tests just conducted showed that this facility has even improved. 

Cooperation with the Finnish authorities is just as important if things are to go well as and when required. In its recommendations, the IMF also stressed the importance of the steadfast continuation of this work. The challenges that all the authorities face have not gone away: in recent years they have mainly changed their shape and become more complex.

The important work continues 

Russia’s war of aggression in Ukraine, which started in 2022, altered Europe’s and Finland’s security environment and highlighted the need to pay more attention to the critical infrastructure in circumstances where, previously, there had been no such concern to the same extent. The changed security environment and the fighting in Ukraine have brought to the surface the sensitive issue of the experiences of earlier generations of Finns during the Winter War against the Soviet Union. In my chest of draws are the memoirs of a close relative describing life on the front line in the Winter War 83 years ago. The war now going on in Europe, paying serious attention to the risks it poses, preparing for them and taking proactive steps may be some of the things I will be taking with me when I leave for Brussels. 

The viability of payment systems is crucially important, not just for every household and business, but also for social harmony. As part of Finnish preparedness, last summer a system was established for the country to ensure that daily payments go through even in lengthy times of disruption, such as when there are serious cyber or hybrid attacks, or in emergency situations. The RVV acquired a new statutory function connected with the new system, administration of the National Emergency Account System. Its new task brought with it many new stakeholders and meant that additional skills and knowledge needed to be acquired. Our small, important Authority now has 25 employees and is more important than ever. Preparing for serious disruptions to payments is very close to our original main function  - safeguarding the continuity of banks critical services that have critical importance for society when the banks are facing serious economic problems. 

I believe that safeguarding the functioning of the payment system is something other countries are also involved in. Once again, then, our Authority has been faced with something new, and so I maintain that the RVV’s extended mandate will be a challenge and a source of motivation for my successor and the Authority’s experts well into the future and be an opportunity to do meaningful work for society to ensure that the Finnish financial market remains stable and that the taxpayer benefits.

Thanks 

I am grateful for my years at the RVV and the tremendous experience I have gained here. You do not normally get a change to heap praise on an institution you have established yourself.

However, I cannot take all the credit for my achievements, because the RVV’s success is due to the competence of its staff and its viable channels of cooperation. I derive satisfaction from seeing my colleagues develop and rise to new challenges. The most important thing is that the RVV should evolve and thrive. Hopefully, I will also be able to help the Finnish banking sector and the RVV in its challenging work when I take up my new post at the SRB. I look forward sharing my thoughts on that in other articles and postings.  

My thanks go to everyone and all the partners I have got to know as Director General of the RVV. May I also thank the RVV’s committed and very knowledgeable staff. Come and say hello in Brussels some time!

Tuija Taos