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Ministry of Finance and Economic Affairs

Meeting of the Financial Stability Council

The first meeting of the Financial Stability Council was held in the Ministry of Finance and Economic Affairs on Wednesday, 10 September 2014. The Financial Stability Council is the authorities' official forum for collaboration on financial stability. The Council serves as venue for consultation, exchange of information and policy formulation on financial stability and co-ordinates the preparedness of public authorities for financial crises.

The Financial Stability Council is comprised of the Minister of Finance and Economic Affairs, who acts as chairman, the Central Bank Governor and the Director General of the Financial Supervisory Authority.

The following matters were on the meeting agenda:

  • Report of the Systemic Risk Board
  • Draft of protocols for the Financial Stability Council and the Systemic Risk Board
  • Provisions on capital buffers in the Bill of Legislation amending the Act on Financial Undertakings
  • Draft of official policy on financial stability
  • Other matters

The Financial Stability Council considers that the economy is currently fairly balanced, with the exception of the capital account, which is restricted by capital controls. The principal systemic risk factors are the same as in recent quarters: capital movements could cause instability following the liberalisation of the capital account or asset prices could be distorted as a result of continuing capital controls. The country's heavy repayment schedule in foreign currencies increases the balance of payments problem in connection with potential capital movements upon the removal of controls. Although the banks' capital position is strong and their operations have been profitable, it should be borne in mind that one-off items are a major component of these profits. Lending to the private sector continues to contract and lending conditions have changed little in recent months. The banks' funding is still comprised for the most part of stable domestic deposits; refinancing risk still exists in connection with the bonds issued by Landsbankinn to LBI, assuming unchanged terms and conditions.

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