Central Bank of Iceland Financial Stability Committee keeps countercyclical capital buffer at 2.5% and calls for stronger payment infrastructure resilience

The Central Bank of Iceland’s Financial Stability Committee (FSN) published its latest assessment of financial stability, judging the Icelandic financial system to be resilient and deciding to leave the countercyclical capital buffer unchanged at 2.5%. Systemically important banks were assessed as having strong capital and liquidity and ready access to market-based funding. While inflation and high interest rates have been challenging for households and businesses, balance sheets were described as strong overall, with low debt ratios in historical and international context, limited arrears, and a high household saving rate. The FSN highlighted elevated external risks, including geopolitical uncertainty and rising protectionism that could disrupt supply chains, raise costs, distort price formation, dampen investment and activity, and trigger an abrupt adverse shift in global financial markets that could spill over to Iceland; it therefore underscored the need to maintain strong capital among domestic deposit institutions. Operational risk to financial market infrastructure was also flagged, with emphasis on contingency and business continuity planning and on bolstering the operational security of payment intermediation, including launching an independent domestic payment solution and developing additional payment channels in parallel. The FSN indicated it will continue to apply its available policy instruments to preserve financial stability and support the financial system’s ability to provide credit and payment services and redistribute risks appropriately.