Statement of the Central Bank of Iceland Financial Stability Committee 7 December 2022
The global economic outlook is highly uncertain, and global economic development could adversely affect the Icelandic economy in the coming term. Inflation is high in Iceland’s main trading partner countries, and central banks there have continued to tighten their monetary policy stance, which has worsened the outlook for financial stability. Conditions in foreign funding markets have tightened for domestic financial institutions. Furthermore, growing domestic demand has led to a wider current account deficit. Risks to financial stability in Iceland have therefore increased.
The systemically important banks are highly resilient. Their capital and liquidity are strong. The banks are well prepared to respond to external economic shocks and support households and businesses.
Imbalances in the housing market have receded in recent months, concurrent with increased supply of properties for sale and a lengthening of the average time-to-sale. The imposition of borrower-based measures has mitigated higher-risk new lending and fostered higher equity ratios.
The Financial Stability Committee (FSN) has completed its annual review of systemically important financial institutions and the capital buffer for systemic importance (O-SII buffer). Based on European Banking Authority methodology, the FSN has confirmed the systemic importance of Arion Bank, Íslandsbanki, and Landsbankinn. The Committee has decided to hold the O-SII buffer unchanged at 2% for all exposures.
In its quarterly review of the countercyclical capital buffer (CCyB), the FSN has decided to hold the buffer unchanged at 2%.
The Committee discussed the importance of increasing efficiency and security in domestic electronic payment intermediation so as to ensure business continuity. Steps have been taken towards an independent domestic retail payment solution, which is important in terms of both cost-efficiency and risk, including the risk due to continuously growing cyberthreats.
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.
No. 23/2022
7 December 2022