Vanhanen: Finnish banks in good shape

Euro countries agree on rescue package

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Political leaders of the 15 countries of the euro zone agreed at their meeting in Paris on Sunday on a formula to guarantee credits between banks if necessary. The aim of the state guarantees is to boost confidence among banks, in order to get them to lend money to each other, and to get credit moving again.
     Finnish Prime Minister Matti Vanhanen (Centre) says that Finland will also make preparations for possible capitalisation of problem banks, and for guarantees for interbank lending.
     However, he added that there is no immediate need for any state intervention, as Finnish banks are in such good shape at the moment.
     “From Finland’s point of view, talk about sums of money is theoretical, because the liquidity of Finnish banks is good. There is no indication that Finnish banks would require capitalisation”, Vanhanen said after the meeting.
     He emphasised earlier on Sunday that Finnish taxpayers’ money would not be used for bailing out foreign banks.
     
There was no talk of concrete sums of money. French President Nicolas Sarkozy said that at least Germany, France, and Italy will publish their national plans on Monday. Germany is expected to announce a large aid package involving direct bank support worth more than EUR 10 billion.
     Sarkozy emphasised that the agreement is no free gift to the banks, but rather a way to get them working.
     
Finland will not automatically guarantee lending between banks.
     “The precise conditions will be defined on a country-by-country basis, and as soon as possible, so that the instrument will be available, if needed”, Vanhanen said.
     He feels that it is important that the banks can have confidence in the availability of financing, and maintain capability to make loans.
     Although Finnish banks have not succumbed to the crisis, the overall situation has led to lowered investment and higher interest rates in this country as well. It has also made banks in Finland tighten the conditions of lending.
     
The plan of the euro countries is largely modelled on last week’s rescue operation implemented by Britain. Under the British plan, the banks are getting more than EUR 47 billion in capital. The state is getting shares in the banks in return for the input.
     European Central Bank President Jean-Claude Trichet praised the success of the meeting.
     
Finnish financial experts expressed cautious optimism. Sixten Korkman, director of the Research Institute of the Finnish Economy (ETLA) says that the decision reached in Paris is a positive indication that the euro zone can work together.
     “This is a good decision, because I believe that it will open up the wholesale market in money. The readiness of states to make remunerative investments in the capital of banks is well-founded. States can also benefit from the long-term rise in value of bank shares.”
     “It is good to keep in mind that we are walking on thin ice. It is not quite certain if the ice will start to hold. The actions go in the right direction. I think that it is possible that this is a turning point on the market”, said Timo Ritakallio, deputy CEO of the pension insurance company Ilmarinen.
     Ritakallio feels that it is especially important for states to guarantee banks’ market-based capital acquisition. “It is good for this market”, Ritakallio says.


Previously in HS International Edition:
  Bank crisis makes Finns nervous (10.10.2008)
  Financial crisis: Banks in Finland and elsewhere raise deposit protection limit (9.10.2008)
  Euro countries agree on unified system of bank deposit guarantees (7.10.2008)
  Major Finnish investors seek to calm worries about financial crisis (30.9.2008)

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