The purpose of the Rules on Foreign Exchange Balance is to contain foreign exchange risk by preventing credit institutions’ foreign exchange balances from exceeding defined limits.
The Rules on Foreign Exchange Balance, No. 784/2018 (in Icelandic), are issued on the basis of Article 24 of the Act on the Central Bank of Iceland, No. 92/2019 (in Icelandic), which authorises the Central Bank to lay down rules on credit institutions’ foreign exchange balance.
The Rules extend to credit institutions – i.e., commercial banks, savings banks, and credit undertakings, pursuant to the Act on Financial Undertakings, No. 161/2002 (in Icelandic), with subsequent amendments, which are collectively referred to as financial undertakings in the Rules on Foreign Exchange Balance.
Credit institutions submit reports each month on their foreign exchange balance, and market makers in the interbank foreign exchange market also submit less extensive daily reports on their foreign exchange balance. The reports contain detailed information on the current and forward position of foreign assets and liabilities.
| Limitations on the foreign exchange balance | Systemically important credit institutions | Credit institution not classified as systemically important |
|---|---|---|
Open foreign exchange position as a percentage of the capital base | 10% | 15% |
Total balance as a percentage of the capital base | 10% | 15% |
Subject to a maximum of | 25 b.kr. | 25 b.kr. |