Capital buffers

Capital buffers are capital requirements that can be imposed on financial institutions in excess of minimum capital requirements. They are intended to counteract the problems that could occur when economic shocks and increased expectations of losses on financial institutions’ assets cause those institutions to reduce the supply of credit excessively in order to safeguard their own solvency. Capital buffers are variable and flexible capital requirements, and the repercussions and penalties for violations of them are less stringent than for violations of minimum capital requirements. They are conceived as a vehicle for financial institutions to smooth out fluctuations in credit supply despite shocks that occur in the economy.

The capital buffers that have been implemented in Iceland are as follows: systemic risk buffer, capital buffer for systemic importance (O-SII buffer), countercyclical capital buffer (CCyB), and capital conservation buffer. These are described in greater detail in Chapter 10 of the Act on Financial Undertakings, no. 161/2002.

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Capital buffers: Arion bank, Íslandsbanki og Landsbankinn

Date 1.4.2016 1.1.2017 15.5.2019 1.2.2020 19.3.2020 29.9.2022 16.3.2024 Capital buffer
Systemic risk buffer 3.00% 3.00%
O-SIIs buffer 2.00% 2.00%
Countercyclical capital buffer 1.75% 2.00% 0.00% 2.00% 2.50% 2.00%
Capital conservation buffer 2.50% 2.50%
Combined buffer requirement 9.50%

 

Capital requirements: Commercial banks

Capital requirements Arion bank Íslandsbanki Landsbankinn Kvika
Pillar I 8% 8% 8% 8%
Pillar II-R* 2.1% 2.4% 2.8% 4%
Capital buffers 9.3% 9.3% 9.3% 6.7%
Combined capital requirements 19.4% 19.7% 20.1% 18.7%
*Pillar II-R according to SREP 2023. 

  

Capital buffers/ Break down Arion bank Íslandsbanki Landsbankinn Kvika
Capital conservation buffer 2.5% 2.5% 2.5% 2.5%
O-SIIs buffer 2.0% 2.0% 2.0%
Countercyclical capital buffer* 2.0% 2.0% 1.9% 2.0%
Systemic risk buffer* 2.8% 2.8% 2.9% 2.2%
Combined capital requirements 9.3% 9.3% 9.3% 6.7%
*The weighted average of systemic risk and countercyclical buffers considering foreign exposures.

 

Capital buffers: indó sparisjóður, Kvika bank, Sparisjóður Austurlands, Sparisjóður Höfðhverfinga, Sparisjóður Strandamanna og Sparisjóður Suður-Þingeyinga

Date 1.1.2017 1.1.2018 15.5.2019 1.1.2020 1.2.2020 19.3.2020 29.9.2022 16.3.2024 Capital buffer
Systemic risk buffer 2.00% 3.00% 3.00%
Countercyclical capital buffer 1.75% 2.00% 0.00% 2.00% 2.50% 2.00%
Capital conservation buffer 2.50% 2.50%
Combined buffer requirement 7.50%

 

Capital buffers: Fossar fjárfestingarbanki, Lánasjóður sveitarfélaga and Teya Iceland

Date 1.1.2017 15.5.2019 1.2.2020 19.3.2020 29.9.2022 16.3.2024 Capital buffer
Countercyclical capital buffer 1.75% 2.00% 0.00% 2.00% 2.50% 2.00%
Capital conservation buffer 2.50% 2.50%
Combined buffer requirement 4.50%