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Ministry of Finance and Economic Affairs

Minutes of the Meeting of the Financial Stability Council of 18 May 2016

The meeting was held in the Ministry of Finance and Economic Affairs.

Members of the Council: Minister of Finance and Economic Affairs Bjarni Benediktsson, Chairman; Már Guðmundsson, Governor of the Central Bank; Unnur Gunnarsdóttir, Director General of the Financial Supervisory Authority

Others attending: Guðrún Þorleifsdóttir, Director General of the Department of Economic Affairs and Financial Services at the Ministry of Finance and Economic Affairs; Sigríður Benediktsdóttir, Director of Financial Stability at the Central Bank; Jón Þór Sturluson, Deputy Director General of the Financial Supervisory Authority; Bryndís Ásbjarnardóttir, Head of Macroprudential Supervision at the Financial Supervisory Authority; and Tinna Finnbogadóttir, secretary of the Financial Stability Council.

The meeting commenced at 11:00.

1. Report from the Systemic Risk Board

A review was given of the highlights of the Systemic Risk Board's report to the Financial Stability Council and of the financial market situation. The insolvent estates have fulfilled the stability conditions set for them and the national economy is generally in a good position, although increasing tension in the economy and the potential impact of capital inflows on the indebtedness of domestic parties needs to be monitored.

2. Imposition of capital buffers

The Director General of the Financial Supervisory Authority described the imposition of capital buffers, which were implemented for the first time in February this year, and communications between the supervisory authorities and financial undertakings in this process. Proposals for improvements to the process were submitted which will be reviewed and discussed during the interim period between meetings.

3. Counter-cyclical buffer

The Financial Stability Council approved the Systemic Risk Board's proposal for an unchanged counter-cyclical buffer from that of the last meeting.

4. Second intermediate objective for financial stability

Proposals were discussed from the Systemic Risk Board for three indicators for the second intermediate objective for financial stability. This objective is to mitigate and prevent excessive maturity mismatch and market illiquidity, especially in foreign currencies. It was agreed to use the following indicators: i) the deposits-to-lending ratio; ii) the ratio of liquid assets to total assets; and iii) the ratio of core funding to total funding.

5. Other matters

The news announcement was approved with amendments.

Meeting adjourned at 11:45 am.

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