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Ministry of Finance and Economic Affairs

Minutes of the Meeting of the Financial Stability Council of 16 December 2016

Meeting held at the Ministry of Finance and Economic Affairs

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

Other attendees: Guðrún Þorleifsdóttir, Director General of the Department of Economic Affairs and Financial Services at the Ministry of Finance and Economic Affairs; Harpa Jónsdóttir, Director of the Financial Stability Department at the Central Bank; Jón Þór Sturluson, Deputy Director General of the Financial Supervisory Authority; and Tinna Finnbogadóttir, secretary of the Financial Stability Council.

Meeting called to order at 15:50 hrs.

1. Systemic Risk Committee report

The chair of the Systemic Risk Committee reviewed the Committee's report to the Financial Stability Council. The situation was broadly unchanged since the last meeting: macroeconomic conditions had been broadly favourable for the financial system in the recent term, although there was growing tension in the labour market and housing market, which could exacerbate risk in the future.

2. Quarterly discussion of countercyclical capital buffers

Since the Council's last meeting, cyclical systemic risk has increased somewhat, but not more rapidly than was assumed at the time of the last decision on countercyclical capital buffers. The Financial Stability Council agreed to keep the countercyclical capital buffer unchanged at 1.25% for the present.

3. Harmonisation of the Council's work with the Official Policy on Financial Stability and the Act on Financial Undertakings

The Official Policy on Financial Stability states as follows concerning indicators:

“To analyse systemic risk, the Financial Stability Council is to use at least one measure or indicator of the situation of each intermediate objective. These indicators shall be based, among other things, on international and domestic research findings. The Financial Stability Council shall regularly disclose which indicators it takes into particular consideration in analysing systemic risk.”

Thus far, the Financial Stability Council has disclosed when indicators have been approved as key indicators for intermediate objectives (see the minutes from the meetings held on 14 April 2015 and 18 May 2016). At the meeting, it was discussed whether information on the indicators should be disclosed in a different manner, and it was decided that before the Council's next meeting, the Systemic Risk Committee should compile a memorandum on how best to handle the publication of the indicators and to examine, among other things, how this is done by comparable bodies abroad.

It was agreed to update the names of the capital buffers in the Official Policy on Financial Stability so as to observe consistency with their names as presented in the Act on Financial Undertakings, no. 161/2002.

Article 86(d) of the Act on Financial Undertakings, no. 161/2002, states that on a quarterly basis, the Financial Stability Council shall make recommendations on the value of the countercyclical capital buffer for each quarter and that both the recommendation and the decision to apply a countercyclical capital buffer or to raise or lower it must be supported and made public. Meeting attendees discussed these provisions and how best to handle the recommendations, given that it was assumed that recommendations would be made each quarter and that decisions to raise or lower the buffer must be supported and publicised. Thus far, the Council has not sent an explicit recommendation when it has been decided to keep the countercyclical capital buffer unchanged, whereas recommendations to increase the buffer have been sent to the Financial Supervisory Authority and supported and published on the Financial Stability Council website. It was decided that the Systemic Risk Committee should compile a memorandum on this and present it at the next meeting of the Council.

4. Updated core indicators and additional indicators for intermediate objective 1

At its meeting on 14 April 2015, the Financial Stability Council approved three core indicators for intermediate objective 1. One of these indicators, the credit-to-GDP ratio, has been presented in two ways: growth in the ratio itself and deviation from its long-term trend (the credit-to-GDP gap). Therefore, there are actually four indicators that have been considered. The Council agreed to discontinue using growth in the credit-to-GDP ratio (i.e., the difference in credit as a share of GDP between two points in time) and instead use credit growth as a share of GDP, or credit intensity (i.e., the difference in credit between two points in time, as a share of GDP), which is considered to provide a more stable signal. It was also agreed to add a new additional indicator for the same intermediate objective: growth in the price- and exchange rate-adjusted credit stock.

5. Other business

It was agreed that a press release would be circulated among attendees and corrected prior to publication on Monday 19 December 2016.

The meeting was adjourned at 16:45 hrs.

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