October 12, 2017 / 1:49 PM / a year ago

Finnish government proposes new buffer to mitigate bank risks

HELSINKI, Oct 12 (Reuters) - Finland may require banks to hold additional capital when the financial regulator sees “systemic” risks growing in the economy, the country’s Finance Ministry said on Thursday.

The systemic-risk buffer would allow the Financial Supervisory Authority to demand banks set aside 1 to 5 percent of their core capital, partly on top of existing buffers. Most EU countries have passed legislation on such a buffer.

“The banks in Finland are in good shape and have conducted their business responsibly. Right now, there are no foreseeable imbalances,” Finance Minister Petteri Orpo said in a statement.

“However, it is up to the government to ensure that sufficient stability tools are available, if necessary.”

The Finnish banking system is highly concentrated. The three biggest banks - Nordea, OP Financial Group and Denmark’s Danske Bank - control around 80 percent of all household lending and deposits.

A proposed bill on the buffer is expected to come before parliament in the coming weeks. The government wants to pass it by January.

A government source said that Nordea’s intention to move its headquarters from Sweden to Finland was not the reason for the buffer plan, which had been prepared for some time.

If implemented, Nordea’s plan - announced last month - would make Finland the smallest country to host a bank regulators classify as systematically important globally. (Reporting by Tuomas Forsell and Jussi Rosendahl, editing by Larry King)

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