The Icelandic financial system is sound and is well prepared to withstand unforeseen shocks. The systemically important banks’ financial position is strong, and their access to market-based funding is good.
The global inflation outlook has deteriorated, and central banks in leading advanced economies have raised their interest rates. Concerns about fiscal sustainability have increased and long-term government bond yields have risen steeply, causing turmoil in the financial markets.
In Iceland, yields on non-indexed long-term Government bonds have not risen to the same degree, and the exchange rate of the króna has held relatively stable, in part because of the high national savings and modest indebtedness. Global unrest, persistent inflation, and high domestic interest rates concurrent with declining economic activity could test the resilience of the financial system.
Real wage growth and low unemployment have supported household finances in recent years. Borrower-based measures have strengthened households’ resilience, their debt ratios are low and arrears limited. Nevertheless, there are clear signs of a cooling labour market and an economic slowdown in tandem with high interest rates. Real house prices have fallen, the number of homes for sale has increased, and selling times have lengthened, particularly for newly built properties. This could put strain on construction companies and cause arrears in the sector to rise.
Advancements in artificial intelligence can increase the speed, scale, and complexity of cyberattacks. It is vital that financial market entities strengthen their defences in line with developments in cyberthreats. It is important to further enhance resilience and coordinate financial system entities’ preparedness for serious operational incidents. Implementation of a solution allowing for offline use of payment cards has already taken place, a significant step towards strengthening payment intermediation.
In its quarterly review of the countercyclical capital buffer, the FSN has decided to hold the buffer unchanged at 2.5%, in accordance with its policy on the application of the buffer. As before, the Committee will apply the policy instruments at its disposal so as to preserve financial stability, thereby enabling the financial system to mediate credit and payments and redistribute risks appropriately.
Press release No. 9/2026
September 23 2026