15 June 2022

Statement of the Financial Stability Committee 15 June 2022

The systemically important banks are highly resilient at present. Their capital and liquidity are well above regulatory minima. It is vital to ensure that growing economic activity is not accompanied by unwarranted risk appetite and excess lending growth, which could cut into financial system resilience. If the global economic recovery suffers a setback, it could affect financial stability in Iceland.

Real estate prices have risen still higher this year and have deviated noticeably from fundamentals such as wages, building costs, and rent prices. In order to safeguard the resilience of borrowers and lenders alike, and in view of the current circumstances, the Financial Stability Committee (FSN) has decided to lower the maximum loan-to-value (LTV) ratio on mortgage loans to first-time buyers from 90% to 85%. The maximum LTV ratio is held unchanged for other buyers. The Committee has also decided to establish a reference interest rate for the calculation of debt service in the Rules on Maximum Debt Service-to-Income Ratios for Mortgage Loans to Consumers. The reference rate will be a minimum of 3% for indexed mortgages and 5.5% for non-indexed mortgages. Furthermore, the FSN has decided to shorten the maximum loan term used to calculate debt service on indexed loans to 25 years. The changes in the debt service-to-income (DSTI) ratio are intended to increase borrowers’ risk awareness when they select from among loan types, as the debt service burden on indexed loans is relatively lighter early on and then grows heavier over the term of the loan. The objective of the above-specified measures is to limit the accumulation of systemic risk in the financial system.

In addition, the FSN has decided to hold the countercyclical capital buffer unchanged. The decision taken in September 2021 to increase the buffer from 0% to 2% will take effect at the end of September 2022.

The Financial Stability Committee reiterates the importance of enhancing security in domestic payment intermediation and expediting the implementation of an independent retail payment solution.

The Committee will continue to apply the policy instruments at its disposal so as to preserve financial stability, thereby enabling the financial system to mediate credit and payments and redistribute risks appropriately.


Memorandum 8. June 2022. Background to the decision on the countercyclical buffer.pdf 


No. 13/2022
15 June 2022

The photo shows the Financial Stability Committee after its meeting yesterday.