14 October 2019

Restrictions on transactions with the Central Bank

Central Bank of Iceland

The Central Bank of Iceland has decided that, effective 1 April 2020, it will reduce the number of parties eligible to hold current accounts with the Bank. These parties currently include banks, savings banks, credit institutions, governmental institutions, and various Government-owned funds. From 1 April onwards, however, only deposit-taking institutions – commercial banks, savings banks, and Part A governmental institutions – will be eligible to hold such accounts.

Current accounts owned by credit institutions and funds not classified as Part A institutions will be closed on 31 March 2020. This closure does not affect settlement accounts. Furthermore, as of 28 February 2020, these parties will no longer be eligible for Central Bank facilities.

In accordance with the above, the Central Bank of Iceland will amend the Rules on Minimum Reserve Requirements, no. 585/2018, and the Rules on Central Bank Facilities for Financial Undertakings, no. 553/2009, so that credit institutions with operating licences pursuant to Article 4, Paragraph 1, Item 3 of the Act on Financial Undertakings, no. 161/2002, will not be subject to reserve requirements from 21 March 2020 onwards and will not have access to Central Bank facilities from 28 February 2020 onwards.

The objective of Central Bank facilities and liquidity management is to promote monetary policy transmission along the yield curve. In view of this, the Bank considers it more consistent with its role as a central bank to channel interest rates through those financial institutions that can transmit them onwards to individuals and businesses in an effective and transparent manner through deposits and loans. Furthermore, the Central Bank is of the opinion that refraining from competing with financial institutions for deposits is more consistent with the substance of Article 17, Paragraph 2 of the Act on the Central Bank of Iceland. As such, deposit accounts with the Bank should not be a vehicle for investment or risk diversification beyond what is necessary for commercial banks, savings banks, and fiscal administration.

Further information can be obtained from Gerdur Isberg, Deputy Director, Treasury and Market Operations, Central Bank of Iceland, at tel: +354 569-9600.

Press release no. 22/2019
14 October 2019