From August to the end of February the DMBs had disbursed 14,500 mortgage loans, for a total of 158 b.kr. In the opposite direction, pension funds’ loans to members contracted over the same period by 6 b.kr. and lending by the HFF by 59 b.kr. The transfer of mortgage lending to the banking system is beneficial and will strengthen it in the long run. However, the timing of this development during a strong expansionary phase is inappropriate. Given the way that events have unfolded, a review of the role of the Housing Financing Fund and the legislation governing it has become very necessary. Excluding their direct foreign operations, the DMBs’ foreign debt amounted to 1,200 b.kr. at the end of January, and had grown by 561 b.kr. over the previous twelve months. The lion’s share of this debt is long-term, which is a great improvement from the times when the banks were overdependent on short-term borrowing for their funding. Their foreign assets have grown as well, but not in pace with their debts. Foreign assets of DMBs amounted to 590 b.kr. at the end of January, having grown by 312 b.kr. over the previous twelve months. Iceland’s external debt, which is largely comprised of the banks’ foreign debts, is one of the weakest links in its economy. All the agencies that issue sovereign ratings for Iceland identify this as a risk and warn that increased indebtedness could lead to a downgrading of its credit ratings. The banks therefore bear a great responsibility in this respect.
Implementation of the investment policy  Our investment policy has not fundamentally changed with the new Act. The monetary reserves continue to constitute core assets for monetary policy. They allow the National Bank to exert an influence on the Swiss franc exchange rate in exceptional situations and are available as an internationally accepted means of payment in a crisis situation. This presupposes a minimum degree of liquidity of these assets. Moreover, monetary reserves enhance the credibility of monetary policy and foster confidence in the Swiss franc. The security of these investments and growth of the monetary reserves in step with the development of the Swiss economy is an important consideration in this context. This is why monetary reserves ought to provide an adequate return, while taking into account the monetary policy restrictions. It is the aim of our investment policy to strike an optimal balance between the criteria of liquidity, security, and return. We assess and regularly review the National Bank’s liquidity requirements - i.e. its need for easily realisable and hence easily accessible assets - on the basis of our experience and taking due account of the current situation. Given the Bank’s large portfolio holdings in US dollar and euro government bonds, the liquidity requirements are currently more than met. This creates a certain amount of leeway for investing in instruments that are less liquid but generate a higher return. The investment criterion “security” must be seen in the context of the monetary reserves as a whole.