Icelandic banks pass the FME stress test

6.2.2008

The four largest commercial banks all pass the regular stress test of the Icelandic 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 end of year 2007 reflect the effects of the turbulence in the financial markets in the second half of the year 2007, 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, says that results from the stress test show strong capital-ratios of the Icelandic banks.“These results show that the banks capital ratios are solid and they can withstand severe shocks. Solid capital ratios are important in the light of the existing turbulence in the international financial markets.”  

The effects of aforementioned simultaneous shocks on capital ratio are following as of end of year 2007. 

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

For further information contact: Íris Björk Hreinsdóttir, telephone 354 525 2754 irisbh@fme.is.

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