14 January 2008

The Central Bank of Iceland expands the definition of eligible collateral in regular transactions with the Bank

The Board of Governors of the Central Bank of Iceland has decided to alter the rules on collaterals in regular transactions with the Bank. The changes aim at aligning the rules closer to practice in other European countries to ensure that the relative operating environment and competitive position of Icelandic banks will be in line with that of foreign competitors in transactions with their respective central banks. Foreign currency denominated bonds will now be accepted as collateral and restrictions on covered bonds will be modified, as will be further defined in rules to be issued by the Central Bank.

Several central banks have expanded their potential liquidity provision in recent weeks and months. The Icelandic interbank market has functioned very smoothly and continues to do so. Rates have been in line with the policy rate of the Central Bank and the transmission of liquidity has without exception been very smooth.

New rules on collaterals will be presented to financial institutions in the coming days and published in the regular manner.

For further information, please contact Sturla Pálsson Director of the International and Market Operations Department of the Central Bank, tel. +354-569-9600.

No. 1/2008
January 14, 2008