06 December 2023

Statement of the Central Bank of Iceland Financial Stability Committee 6 December 2023

The Financial Stability Committee

The Icelandic financial system is sound. The systemically important banks’ capital and liquidity are strong. Although lending growth has eased, the banks remain well able to continue to supply credit to households and businesses. Their foreign market-based funding has been smooth and orderly. Arrears are limited and have risen only slightly, despite higher inflation and interest rates and a heavier debt service burden. In view of this, the Financial Stability Committee (FSN) decided to hold the countercyclical capital buffer unchanged at 2.5%.

Financial conditions have tightened in tandem with the slowdown in economic activity. However, both household and corporate debt ratios are moderate relative to income and assets. This creates the scope to adapt households’ mortgage debt service to their repayment capacity and the borrower-based measures implemented by the FSN.

The pension funds are dominant participants in the domestic financial market. The FSN therefore emphasises that the statutory framework for the funds and the requirements made of them in connection with intermediation of capital should be made comparable to the framework and requirements applying to other financial market entities.

The FSN supports the bill of legislation on enhanced operational resilience in payment intermediation that has been distributed via the Government’s consultation portal. It is important to give comprehensive consideration to the resilience of payment intermediation, adopt an independent domestic payment solution as soon as possible, strengthen financial institutions’ cyber- and operational security, and ensure business continuity.

The FSN completed its annual review of systemically important financial institutions and the capital buffer for systemic importance (O-SII buffer). It confirmed the systemic importance of Arion Bank, Íslandsbanki, and Landsbankinn. The FSN decided to hold the O-SII buffer unchanged at 2% for all exposures.

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

No. 21/2023
6 December 2023

Memorandum: Background to the decision on the countercyclical capital buffer. 1 December 2023

Enclosed (12.12.2023): Figures for the background to the decision on the countercyclical capital buffer 1 December 2023.