In an era defined by central bank activism — emergency asset purchases, negative interest rate experiments, and successive rounds of quantitative easing — a senior official at the Bank of Finland has made a striking argument: that the most consequential decision a central bank can sometimes make is the deliberate choice to do nothing. Board Member Tuomas Välimäki delivered that case before a Bank of Finland stakeholder audience in Helsinki on 14 October 2026, in a speech subsequently published by the Bank for International Settlements one week later.
The speech, titled "The courage not to act — moving towards a demand-driven operational mode," represents more than a philosophical meditation on restraint. It signals a meaningful shift in how at least one voice within the Eurosystem is framing the next chapter of central bank operational design — one in which the architecture of monetary implementation is shaped more by the genuine liquidity needs of the banking sector than by the supply-pushing impulses that dominated post-crisis central banking for more than a decade.
Restraint as Strategy, Not Passivity
The phrase "courage not to act" is deliberately provocative. In the political economy of central banking, inaction has long been treated as a failure of nerve — a reluctance to deploy available tools in the face of economic stress. Välimäki's framing inverts that assumption. The argument is that in a normalising monetary environment, the refusal to intervene unnecessarily — to allow market mechanisms to function without the distorting weight of central bank balance sheet expansion — requires its own form of institutional discipline and, indeed, courage.
This is not an abstract concern. The European Central Bank and its Eurosystem national central banks, including the Bank of Finland, have spent the better part of fifteen years in an almost continuous posture of accommodation. Excess liquidity injected through targeted longer-term refinancing operations (TLTROs) and asset purchase programmes reshaped the operational landscape so thoroughly that the boundary between supply-driven and demand-driven liquidity provision became almost academic. Välimäki's speech suggests that the moment for re-drawing that boundary has arrived.
The Architecture of a Demand-Driven Framework
A demand-driven operational mode places the banking sector — rather than the central bank — in the position of initiating liquidity flows. Under such a framework, banks signal their genuine funding needs through the central bank's standing facilities and regular refinancing operations, and the central bank responds accordingly. The contrast is with a supply-driven model, in which the central bank proactively floods the system with reserves, effectively pre-empting private sector funding decisions and compressing the incentive for banks to price and manage liquidity risk with precision.
The transition matters enormously for monetary transmission. When excess reserves are structurally abundant, short-term money market rates tend to cluster at the floor of the interest rate corridor — the deposit facility rate — reducing the central bank's ability to steer rates with granularity. A leaner, demand-driven balance sheet, by contrast, allows the full width of the corridor to function as intended, giving the central bank more precise control over the policy rate signal it sends to the broader economy.
For Finland specifically, and for the broader Eurosystem, the operational stakes are significant. As the ECB continues its balance sheet normalisation — allowing maturing assets to roll off and TLTRO repayments to reduce aggregate excess liquidity — the banking sector must adapt to a world in which cheap, abundant central bank funding is no longer a structural assumption. Välimäki's remarks, delivered to stakeholders who include financial institutions directly affected by this transition, carry a clear practical message: prepare for an environment in which central bank support is earned through demonstrated need, not granted by default.
What This Means for European Monetary Architecture
The publication of this speech by the BIS — the institution that serves as the central bank for the world's central banks — amplifies its significance beyond Finland's borders. The BIS platform grants Välimäki's arguments a degree of systemic endorsement, situating the demand-driven debate within the broader international conversation about post-normalisation central bank frameworks that is simultaneously underway at the Federal Reserve, the Bank of England, and other major institutions navigating the same operational transition.
The deeper implication of Välimäki's address is institutional: that the credibility of a central bank is not measured solely by its willingness to act boldly in a crisis, but equally by its capacity for disciplined restraint when conditions no longer demand intervention. That discipline — the willingness to trust market mechanisms, to tolerate the temporary friction of a leaner balance sheet, and to resist the political and financial-sector pressure to maintain artificial liquidity comfort — is, as the speech title argues, genuinely difficult. It requires courage of a quieter, less visible kind than the dramatic bond-buying programmes that defined the previous era. As European monetary policy matures into its post-stimulus phase, that quieter courage may prove to be among the most consequential policy choices of the decade.
Written by the editorial team — independent journalism powered by Codego Press.