07 March 2003

The Central Bank of Iceland Changes the Reserve Requirement of Credit Institutions


The Central Bank of Iceland has in recent years taken steps to create operating conditions for Icelandic credit institutions similar to those in most European countries. The Bank has now decided to take a further step in this direction by implementing the following changes pertaining to the reserve requirements of credit institutions:

1. As of March 21, 2003, the current reserve requirement ratios of 
    1.5 percent and 4 percent will be lowered to 1 percent and 3 

2. As of April 1, 2003, the use of reserves as collateral in payments 
    systems will be limited to half the negotiated collateral amount. 
    The purpose of this limitation is to ensure that credit institutions 
    have sufficient margin on the reserve requirement account to 
    meet fluctuations in their liquidity positions.

3. Before the end of the year, further changes will be introduced, 
    such as an adjustment of the reserve base and the reserve ratios 
    to the practices of the European Central Bank. At the same  
    time, the use of required reserves as collateral in payment
    systems will be terminated                 


These changes could lead to a 50 percent reduction in the required reserves held by Icelandic credit institutions on accounts with the Central Bank.



Nr. 5/2003
March 7, 2003