10  A firm is considered to be under high financial pressure when the ratio of (gross operating profit + financial revenue) to financial costs is below one. 11  The net interest burden is considered to be high when the ratio of (debt service expenses - interest income from deposits) to household income is over 40%. 9  Also, it would help to align financial responsibility with the banking supervision and resolution decision-making mechanisms, which are already centralised. Recent events must also be analysed in depth from a global regulatory and supervisory perspective. The Federal Reserve System has already published its review of the reasons behind events in the United States. We have also begun our own assessment through the Financial Stability Committee and the Basel Committee on Banking Supervision, from which lessons will also be drawn. We should take an open-minded approach to the findings of these exercises, which usually allow us to fine-tune the regulations so that they can be continuously adapted in response to changing circumstances. We must also not forget that the final link of the regulatory reform (Basel III) is yet to be transposed into law in several jurisdictions. This regulation must be transposed completely and consistently so as to remedy the outstanding shortcomings, in particular in the definition of banks’ risk-weighted assets.
The Bank’s interest thus has a stimulating effect on the economy, and note that real interest rates at present are lower than they have been since the spring of 1996. It should  BIS Review 12/2003  1  also be borne in mind that changes in interest rates only affect demand and inflation with a considerable time lag, so that the full effect of interest rate cuts in recent months will not be felt for some time yet. ISK exchange rate No one doubts the importance of the ISK exchange rate for the Icelandic economy. The exchange rate has enormous impact on price levels and the performance of the export and competitive sectors. On the other hand, people must realise that the Central Bank has only limited long-term effect on the exchange rate. Many aspects of the economy affect the exchange rate. These include, for instance, foreign trade, foreign investments in Iceland and investment by Icelanders abroad, not to forget expectations of future economic developments. There is little doubt that expectations concerning power-intensive industry developments have influenced the exchange rate in recent months. Interest rates certainly affect the exchange rate, but experience both in Iceland and elsewhere shows that this effect eventually disappears, as long as monetary policy aims at maintaining long-term inflation comparable to that of the country’s trading partners. At the same time, intervention by central banks can have a temporary impact.