The Central Bank of Iceland has in recent years taken steps to createoperating conditions for Icelandic credit institutions similar to those in mostEuropean countries. The Bank has now decided to take a further step in thisdirection by implementing the following changes pertaining to the reserverequirements of credit institutions:

1. As of March 21, 2003, the current reserve requirement ratiosof 

    1.5 percent and 4 percent will be lowered to 1percent and 3 

    percent.

2. Asof April 1, 2003, the use of reserves as collateral inpayments 

    systems will be limited to half thenegotiated collateral amount. 

    The purpose ofthis limitation is to ensure that creditinstitutions 

    have sufficient margin on thereserve requirement account to 

    meet fluctuations intheir liquidity positions.

3. Before the end of the year, furtherchanges will be introduced, 

    such as an adjustment ofthe reserve base and the reserve ratios 

    to thepractices of the European Central Bank. At thesame  

    time, the use of required reserves ascollateral in payment

    systems will beterminated                

These changes could lead to a 50 percent reduction in the required reservesheld by Icelandic credit institutions on accounts with the Central Bank.

Nr. 5/2003

March 7, 2003