2/4  BIS central bankers' speeches  Furthermore, we have lifted the 2% countercyclical capital buffer on financial institutions. The buffer has been reset to 0% and will remain there for at least the next two years. Lifting the countercyclical capital buffer requirement will make it easier for the banking system to support households and businesses by creating the scope for new lending in an amount ranging up to 350 b.kr., or 12.5% of the current loan portfolio, all else being equal. Moreover, it was decided this past Sunday, at an extraordinary meeting of the Monetary Policy Committee, to begin direct purchases of Treasury bonds in the secondary market. This will both support fiscal policy and ensure that lower interest rates are transmitted out the entire yield curve, thereby lowering households’ and businesses’ financing costs, which is the Bank’s objective. Honoured guests: In Iceland’s campaign for independence, currency issues were never mentioned. It was automatically assumed that Iceland would continue to participate in the Nordic currency union as an independent member, as the Norwegians had done after separating from Sweden in 1905. Participation in Nordic currency cooperation was actually written into the agreement made when Iceland was granted sovereignty in 1918. This currency cooperation was based on the gold standard, as were most of the world’s currencies at that time. However, the Nordic currency union fell apart during the post-war years, and Icelanders were forced to rely on themselves as they endured the shocks that pummelled the country during its first years of sovereignty.
We are prepared, and we have the capacity to meet the shock sweeping the country head-on – and then, before too long, we will turn defence into offence once again. Since the onset of the Great Recession in 2008, we have rebuilt a new financial and monetary system designed precisely to withstand headwinds like those we are facing today. We have built a banking system that is funded almost entirely with domestic savings, with a capital adequacy ratio of 25%, and with abundant liquidity. We have also built up a new export-driven economy where both businesses and households have a strong equity position, and where strong national saving is reflected in a large and sustained current account surplus. For the first time in Iceland’s modern history, its international investment position is positive; i.e., our foreign assets exceed our foreign liabilities. 1/4  BIS central bankers' speeches  We have also enjoyed stability and robust GDP growth for the past seven years, with GDP increasing by a third and real wages up 35%. Iceland is now among the wealthiest countries in the world in terms of GDP per capita. We are prepared – and now we must face the challenge firmly, calmly, and stoically. Honoured guests: One of the things that were not done during the prelude to Iceland’s sovereignty was the establishment of an independent central bank. It wasn’t until 1961 that the Central Bank of Iceland formally began operation, and at that time it was not nearly as independent as it is today.