Capital buffers

Capital buffers are capital requirements that can be imposed on financial institutions in excess of minimum capital requirements. They are intended to increase resilience of financial institutions and reduce the risk of a sudden decrease in the supply of credit during economic shocks. When shocks occur, financial institutions’ expectations of losses can increase substantially. This can increase the risk that financial institutions decrease the supply of credit to safeguard their own solvency. Capital buffers are variable and flexible capital requirements. Repercussions and penalties for violations of them are less stringent than for violations of minimum capital requirements.

The capital buffers that have been implemented in Iceland are as follows: systemic risk buffer, capital buffer for other systemically important institutions, countercyclical capital buffer, and capital conservation buffer. These are described in greater detail in Chapter 10 of the Act on Financial Undertakings, no. 161/2002.

• European Systemic Risk Board (ESRB) updates CCyB rates monthly here.

*Pillar II-R according to SREP 2024.

*The weighted average of systemic risk and countercyclical buffers considering foreign exposures.