The fourth meeting of the Financial Stability Council in 2018 was held on Friday October 5th.
The meeting discussed risks in the financial system which is still considered moderate, despite having increased from the Council’s last meeting. The output gap has contracted and the likelihood of a downturn in the tourism sector has increased. The financial cycle upswing continues and for the seventh quarter in a row there is growth in nominal private debt. High real estate prices, both for residential and commercial real estate, poses significant risk. The development in the residential housing market is partially due to the rapid growth of the tourism sector in recent years. Icelandic flight operators have faced some headwinds in the past months. Possible shocks to the sector would not threaten financial stability. The current account surplus has diminished rapidly but the financial position of households and businesses remains robust. The banks’ capital ratios have declined, partly due to dividend payments but they are still well above their capital requirements and their liquidity position also above the Central Bank’s requirements. The banks’ resilience is therefore considerable. The economy is robust against shocks, i.a. due to a favorable external position, a large foreign exchange reserve and historically low indebtedness of the public and private sectors.
The Council approved a policy on the application of the countercyclical buffer and recommendations to the Financial Supervisory Authority on maintaining the same countercyclical buffer.