The Financial Stability Council held its first meeting of 2019 on Monday April 1st.
Risk in the financial system is still relatively moderate and the financial cycle upswing has slowed somewhat. Residential real estate prices have been stable recently while commercial real estate prices are still on the rise. Risk has realized with the collapse of WOW Air which will lead to greater contraction in tourism than was assumed in recent forecasts. Consequently, output growth will ease further, and banks will face some losses, but it is unlikely that this alone will jeopardize financial stability.
The retail banks’ resilience is considerable. They maintain capital ratios which are somewhat above the requirements set by the Financial Supervisory Authority and their liquidity positions are strong. A favorable external position, large foreign reserves, and low indebtedness of the public and private sector have increased the economy’s resilience to a shock. Economic policy has considerable room to respond to shocks due to a fiscal surplus, historically low indebtedness of the public sector and the potential to lower the Central Bank’s key interest rate, should the circumstances arise.
The Council approved recommendations to the Financial Supervisory Authority on maintaining the countercyclical buffer and the buffer for systemically important institutions at previously recommended levels.