25 March 2008

Amendments to Central Bank of Iceland rules

The Board of Governors of the Central Bank of Iceland has decided to make some amendments to the Bank´s rules. They are expected to facilitate financial market transactions, particularly in the interbank market for Icelandic krónur.

Furthermore, it has been decided that the Central Bank will issue transferable certificates of deposit, thus increasing the supply of secure short-term securities in the market.

Reserve requirements
New rules on reserve requirements assume that the obligations of Icelandic banks´ foreign branches do not constitute a basis for reserves. This change will take effect when regular information gathering concerning the balance sheet items of Icelandic financial companies’ foreign branches has been implemented.

The purpose of the change is to co-ordinate the Central Bank’s rules with those of the European Central Bank insofar as is possible. Though no figures are currently available, it can be expected that this change will considerably lighten the reserve requirements of those banks that operate branches abroad.

Central Bank collateral loans
As regards securities eligible as collateral for Central Bank facilities, it has been decided that it is sufficient that covered bonds have a specified credit rating. The requirement that the issuer of such covered bonds have a credit rating no longer applies. This change should make it easier for smaller financial companies to acquire liquidity in return for secure collateral.

Certificates of deposit
The Central Bank plans to issue special certificates of deposit with the following characteristics:
A large series will be registered at the Icelandic Securities Depository, and CDs from that series will be offered to financial companies for sale on the same days that regular collateral loans are granted.

The CDs will be transferable to specified parties.
Unit price: 100 m.kr.
Maturity date of the principal: 182 days (26 weeks) after the date of issue.

Interest rate: Variable, but fixed for a week at a time. The rates, which are the same as those advertised for CDs. Paid weekly.

These securities are different from those currently available in that they are registered electronically and are transferable.

It is considered that there is considerable demand for secure, short-term securities, and this issue is expected to meet that demand. In the first series, securities will be issued for up to 50 b.kr.
Furthermore, according to a separate press release today, the Treasury will issue 9-month Treasury notes later this week.

Further information can be obtained from Eiríkur Gudnason Governor of the Central Bank of Iceland, at tel: +354 569-9600.

No. 11/2008
25 March 2008