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; Harpa Jónsdóttir, Director, Financial Stability Department, Central Bank of Iceland; Einar Jón Erlingsson, Head of Macroprudential Policy, Financial Supervisory Authority; and Tinna Finnbogadóttir, Secretary to the Financial Stability Council.
The meeting was called to order at 15:10 hrs. on 20 March 2018
1. Presentation by chair of the Systemic Risk Committee on key aspects of the Committee’s report
a. Risk in the financial system is growing, as can be seen in credit growth, which has overtaken GDP growth. The commercial banks’ resilience is good, although it has declined, in part because of dividend payments. Pressures in the housing market have eased, but it is important to keep well abreast of the risk that could stem from commercial real estate prices, which have risen steeply in the recent term. Renewal of trading systems and other bank infrastructure and the renewal of the Central Bank’s real-time gross settlement (RTGS) and netting systems entail temporary operational risk, which monitoring bodies and supervised entities have monitored closely.
2. Authorisation to set rules on capital buffers
a. The Financial Supervisory Authority considers it desirable to change the wording of the Act on Financial Undertakings, no. 161/2002, pertaining to the imposition of capital buffers. This provision has been interpreted to mean that the Financial Supervisory Authority’s decisions to impose capital buffers have been defined as administrative decisions and have followed the procedures pertaining to such decisions. The Financial Stability Council agrees that it would be better if the Financial Supervisory Authority were granted the authorisation to set rules on capital buffers. If this were done, decisions on capital buffers would be defined as general administrative orders and not administrative decisions. The Ministry of Finance and Economic Affairs will bear this in mind when Act no. 161/2002 is next reviewed, which is scheduled for the autumn 2018 legislative session.
3. Imposition of capital buffers
a. Capital buffer for systemically important institutions
i. The proposal to keep the capital buffer unchanged at 2% was approved.
b. Capital buffer due to systemic risk
i. The proposal to keep the capital buffer unchanged at 3% and lengthen the adaptation period for non-systemically important financial institutions authorised to accept deposits was approved. According to the Financial Supervisory Authority’s decision of 1 March 2016, such companies were required maintain a capital buffer of 3% as of 1 January 2019, but it was agreed to postpone the deadline until 1 January 2020.
The meeting was adjourned at 16:20 hrs. on 20 March 2018 and continued at 13:10 hrs. on
Friday 13 April 2018.
4. Imposition of capital buffers, continued
a. Countercyclical capital buffer
i. The proposal to recommend to the Financial Supervisory Authority that the countercyclical capital buffer be increased by 0.5 percentage points, to 1.75%, was approved. The increase takes effect 12 months after the relevant decision by the Financial Supervisory Authority.
b. Other business
i. A draft response letter to the Association of Icelandic Savings Banks, responding to the Association’s letter dated 3 October 2017, on the imposition of the systemic risk buffer, was approved.
ii. Approval of press release
The meeting was adjourned at 13:50 hrs. on 13 April 2018.