18 June 2021

Special Publication no. 15: Capital requirements and financial stability

The Central Bank of Iceland has published a report on capital requirements and financial stability. The publication contains an accessible summary of the capital requirements in effect in Iceland, in view of the global regulatory framework and its evolution in recent decades. The report also presents the rationale for different capital requirements and their application abroad as well as in Iceland, as well as giving an overview of key economic issues relating to the requirements.

Because of the uniquely important social role that financial institutions have – deposit taking institutions in particular – it is extremely important for the economy that these institutions be able to carry out their tasks. In view of this, financial stability, which is one of the Bank’s legally mandated tasks, is defined as a situation wherein the financial system is equipped to withstand shocks to the economy and financial markets, procure capital, mediate credit and payments, and redistribute risks appropriately. This definition reflects, among other things, two possibly conflicting elements: on the one hand, the need for an ample supply of credit, and on the other, the need for a resilient financial system. The report attempts to explain the current regulatory framework on capital requirements in a manner that harmonises these two perspectives, with macroeconomic efficiency as a guiding principle.

The report, the fifteenth in Iceland’s Special Publications series, can be found on the Central Bank of Iceland website.

See: Special Publication no. 15.