Iceland’s finance minister: What went wrong and what comes next
“We monitor the banks’ various parameters on a monthly, quarterly and half-yearly basis and in our view they are well capitalized, have strong credit quality and have slowed the pace of their acquisitions and their credit growth recently. They have not exceeded any guidelines or broken any rules.”
One of the FME’s main tools in keeping banks on the straight and narrow are its stress tests, which are broadly similar to tests carried out elsewhere in Europe by regulators and include declines in the value of non-performing loans, domestic and foreign shares held by the banks, bonds held by the bank and a 20% weakening in the Icelandic krona. In the case of loans and mortgages, the test figures reflect the worst years experienced by any banks over the past decade.
The stress tests implemented by the FME have been subject to criticism by some analysts, who have complained that the tests were carried out individually, rather than all at once – as actually occurred in February and March. But Jónsson says that the tests have always been carried out simultaneously, precisely to simulate the kind of situation that occurred earlier this year.