Resolution tools and powers

Facilitating the continuation of critical operations and protecting taxpayers from costs 

Financial crises have shown how problems at one bank can quickly spread more widely and threaten the stability of the entire financial system. For example, in 2007–2008 the situation escalated into a global financial crisis. The crises forced governments to bail out the big and financially important banks with public money. The costs of banking crises grew so high that they even threatened the economic viability of some countries.

To manage banking crises, a completely new regulatory framework and effective authority powers were created. In Finland, these powers are held by the FFSA. 

The objective of resolution is to resolve a crisis in a failing bank in a controlled manner without jeopardizing the entire financial system. It is important that taxpayers won’t end up bearing the costs for financial crises. The powers assigned to the authorities ensure that the losses of failing institutions are first borne by the shareholders and creditors. The resolution authority must also ensure that resolution does not make creditors worse off than under normal insolvency proceedings, such as bankruptcy. 

When an institution is in crisis, the Financial Stability Authority assesses whether the institution has any critical functions that must remain operational in spite of the crisis. The FFSA subsequently renders a decision on placing the institution under resolution. If the decision is made not to place the institution under resolution, the FFSA must either make a decision on placing the institution under liquidation or petition a court to declare the institution bankrupt. If the institution is placed under resolution, the Financial Stability Authority can use resolution tools to restore the institution’s viability to a level that enables it to continue its critical functions.