Icelandic banks pass the FME stress test


The four largest commercial banks all pass the regular stress test of the Icelandic Financial Supervisory Authority (FME).

The FME has calculated the effects of simultaneous shocks on capital ratios of the largest Icelandic banks. The shocks imply that a financial undertaking must be in a position to take on certain setbacks that simultaneously may lead to changes in the value of shares, market bonds, non-performing/impaired loans and appropriated assets and the Icelandic krona without having its capital adequacy ratio drop below 8%. It should be mentioned that the stress test is a point test. Consequently the capital ratios of the banks at the end of Q2 2008 reflect the effects of the turbulence in the financial markets in the second half of the year 2007 and the first half of the year 2008, i.e. before the calculation of the effect of the stress test. In addition to the formal stress tests the FME conducts various stress tests as deemed necessary in each case.

The Director General of the FME, Mr. Jónas Fr. Jónsson:
“The results from the stress-test indicates that the capital ratios of the banks are solid and can withstand considerable financial shocks.  Shareholders and management of the banks need to focus on maintaining strong capital and even increase it, as capital levels need constantly to be reviewed in light of different risk factors in the operations of each company”.

The effects of aforementioned simultaneous shocks on capital ratio are following as of end of Q2 2008.

The criteria used in the stress tests is available under this link.


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