19 October 2023

Central Bank updates resolution plans for systemically important banks

The Central Bank resolution authority has updated the resolution plans for Iceland’s three systemically important banks – Arion Bank, Íslandsbanki, and Landsbankinn. The plans cover the execution of bank resolution in the event that their financial position deteriorates to the point that they are deemed failing or likely to fail.

Should a systemically important bank fail, the resolution plan assumes that it will be possible to resolve it quickly and securely, and without funding from the Treasury or the Central Bank. Resolution is intended to ensure that households and businesses continue to have unrestricted access to critical functions, thereby supporting financial stability in Iceland.

Concurrent with updating the resolution plans, the resolution authority also took decisions on the banks’ minimum requirement for own funds and eligible liabilities (MREL), as is provided for in the Act on Resolution of Credit Institutions and Investment Firms, no. 70/2020. The MREL requirements are based on the Central Bank’s MREL policy. They are intended to support resolution plans and ensure that it will be possible to resolve banks that are failing or likely to fail. The three systemically important banks must comply with their MREL requirements at all time.

The systemically important banks’ resolution plans are prepared in accordance with Act no. 70/2020 and the rules and regulations adopted on the basis of that Act. Each resolution plan is based on the assessment of the resolvability of the bank in question, which is made at the same time as and for the purposes of drawing up the resolution plan. This assessment involves analysing the activities of the bank concerned and providing a rationale for the method to be used if the bank should fail, in light of the resolution objectives. Among the main objectives are to minimise the impact of a bank’s failure on its customers, to minimise reliance on public support as well as avoiding a significant adverse effect on the financial system.

Further information on the activities of the resolution authority and on bank resolution can be found on the Central Bank of Iceland website.

No. 17/2023
19 October 2023