Council members: Benedikt Jóhannesson, Minister of Finance and Economic Affairs, Chair of the Council; Már Guðmundsson, Governor of the Central Bank; Unnur Gunnarsdóttir, Director General of the Financial SupervisoryAuthority.
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.
The meeting was called to order at 14:01 hrs.
1. Systemic Risk Committee report.
The Chair of the Systemic Risk Committee explained the key risks in the financial system at present. Discussion centred on demand pressures in the economy, the foreign exchange market, households' and businesses' strong position, the real estate market, and the tourism sector. Overall, risk in the financial system is low. However, as was expected, risk has increased in several areas since the Council's last meeting, mainly in the real estate market. Real estate prices continue to rise, and a mismatch is developing between prices and their conventional determinants. The banks' liquidity and capital positions are strong, and asset quality continues to improve. There are signs that credit growth has begun to pick up, although it is still relatively moderate. Lending requirements appear to have eased, in part because of increased competition in the market. The banks have obtained funding in foreign markets and have used it to refinance loans previously taken on less favourable terms rather than expanding their foreign-denominated loan portfolios. The Central Bank has scaled down its foreign currency purchases, in part due to the size of its foreign exchange reserves.
The findings of the task force on the pension funds' foreign investments, appointed by the Minister of Finance and Economic Affairs, were discussed. The task force submitted its report on 12 April 2017.
2. Financial Supervisory Authority presentation of rules on maximum loan-to- value (LTV) ratios for mortgage lending and analysis of the impact of the rules.
The Deputy Director General of the Financial Supervisory Authority presented draft rules on maximum LTV ratios for mortgage lending; cf. the authorisation contained in Articles 25 and 26 of the Act on Mortgage Lending toConsumers, no. 118/2016. The scenario analysis of the impact of an inflation and property price shock on LTVratios, based on various maximum ratios, was reviewed with an eye to the rules' possible mitigation of risk. The estimated impact of the rules on the banks' and pension funds' mortgage lending was also reviewed.
The Financial Stability Council discussed the rules and the analyses presented and composed a review on the rules to give the Financial Supervisory Authority.
3. Quarterly decision on the countercyclical capital buffer.
The director of the Financial Stability Department of the Central Bank of Iceland reviewed developments in indicators that are part of the assessment carried out in connection with the countercyclical capital buffer. TheSystemic Risk Committee's recommendation that the countercyclical capital buffer be held unchanged from the last meeting, held on 30 September 2016, was approved. The countercyclical capital buffer will therefore remain at 1.25% for all financial undertakings, both individually and on a consolidated basis, apart from those that are exempt from capital buffers pursuant to Article 86(d), Paragraph 4 of the Act on Financial Undertakings, no.161/2002.
4. Other business
a. Preparation and form of Financial Stability Council recommendations and opinionsSince the Act on a Financial Stability Council was passed in summer 2014, three new acts of law containing provisions on the Council's role have entered into force. First of them was legislation amending the Act on Financial Undertakings, which entrusted the Financial StabilityCouncil with sending recommendations to the Financial Supervisory Authority on the imposition of systemic risk buffers, countercyclical capital buffers, and buffers for systemically important institutions. At this meeting, the Financial Stability Council approved for the first time an opinion that it shall give on the rules pertaining to maximum LTV ratios on mortgage loans pursuant to the Act on Mortgage Lending to Consumers, no. 118/2016, which entered into force on 1 April2017. Council members discussed whether – and if so, how – the form and preparation should differ depending on whether the communication concerned was an opinion or are commendation.
b. Press release approved with amendments
The meeting was adjourned at 15:32 hrs.