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Ministry of Finance and Economic Affairs

Minutes of the meeting of the Financial Stability Council on January 18 2018

Meeting held at the Ministry of Finance and Economic Affairs

In attendance were: Bjarni Benediktsson, Minister of Finance and Economic Affairs, chairman; Már Guðmundsson, Governor of the Central Bank of Iceland; Jón Þór Sturluson, Deputy Director-General of the Financial Supervisory Authority; Guðrún Þorleifsdóttir, Director General, Department of Economic Affairs and Financial Services, Ministry of Finance and Economic Affairs; Eggert Þröstur Þórarinsson, Head of Macroprudential Policy, Central Bank of Iceland; Einar Jón Erlingsson, Head of Macroprudential Policy, Financial Supervisory Authority; Páll Ásgeir Guðmundsson, Assistant to the Minister of Finance and Economic Affairs; Tinna Finnbogadóttir, Secretary to the Financial Stability Council.
The meeting was called to order at 15:18 hrs.

1. Presentation by chair of the Systemic Risk Committee on key aspects of the Committee’s report

Risk in the financial system is considered relatively limited, while global risk has increased. The most prominent risk factor, although it is unlikely to materialise in the near future, is high real prices in the real estate market. The likelihood of overheating in the economy has subsided from the perceived risk level in the summer. In global markets, volatility has been at a minimum while asset prices are at a maximum, and conditions could change suddenly. In Iceland, this risk would surface, in part, in more expensive funding for the banks. In general, however, the banks are very resilient, their capital position is sound and their liquidity strong, and stress tests indicate that they could withstand severe strain. If planned dividend payments take place, they will reduce the banks’ resilience, other things being equal, and supervisory authorities must therefore monitor them closely.
The chair of the Systemic Risk Committee gave a short presentation on several highlights from the findings of the risk assessment group on financial market infrastructure, which were presented to the SRC at its December meeting. The points covered were renewal of financial market infrastructure, settlement arrangements for debit cards, and acquirers’ counterparty risk. At present, the real-time gross settlement and netting systems are being renewed, as are the trading systems of the banks themselves and the Central Bank’s trading system. These changes are accompanied by considerable strain and potential contagion. Furthermore, a significant counterparty risk materialised for one acquirer last year.

2. Official Financial Stability Council policy on the countercyclical capital buffer and introduction of systemic risk buffer early in 2019

A draft of the Financial Stability Council’s official policy on the countercyclical capital buffer, prepared by the Systemic Risk Committee, was presented. Furthermore, factors that must be considered in connection with the review of the systemic risk buffer before the Financial Stability Council’s next meeting were discussed. The European Systemic Risk Board has discussed capital buffers, the interactions among them, and experience gained from applying them.

3. Other business

a. Brief discussion of the Nordic-Baltic Stability Group. There are plans to coordinate a crisis simulation where all parties to the group will participate. Such simulations have been held before, in accordance with the Group‘s Memorandum of Understanding, the last of which was held in 2007.
b. Discussion of matters pertaining to Arion Bank
c. Approval of press release

The meeting was adjourned at 16:22 hrs.

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