One of the roles of the Parliamentary Special Investigative Commission is to compile information on these topics and present an analysis of them. The Central Bank neither has the capacity nor the will to front-run that analysis. The Bank will probably need to revise its operational practices in these areas in view of experience and the Commission’s findings, as will other supervisory institutions. In addition, the Bank will soon review its precautionary rules, such as those pertaining to financial institutions’ liquidity and foreign exchange balance, in light of recent events. Various elements of payment intermediation and settlement will also be reviewed in the near future, with the aim of promoting financial stability more effectively. Because of the uncertainty still surrounding assets, capitalisation, and ownership of Icelandic financial undertakings, it is difficult to assess the main risks in Iceland’s financial system at this time. However, those risks are clearly related to asset quality, on the one hand, and foreign exchange and indexation mismatches, on the other. For this reason, among others, it is important that financial institutions maintain capital adequacy ratios well above the statutory minimum in the near future. At present, deposits form the backbone of the banks’ funding, as foreign investment in Iceland and access to global credit markets are limited. Lifting the capital controls entails a certain risk, partly because it involves liberalising capital flows while the ownership structure of the banks is still being clarified.
This is particularly important as the Riksbank has such a high degree of independence. This independence means that it is important to be able to evaluate how we are carrying out our duties. To make it possible to evaluate us, we must be open and clear in everything we do. But it is perhaps not as self-evident that the responsibility of public authority makes a number of other demands on our actions. This applies, for instance, to the forms for how we make our interest rate decisions and how we communicate our monetary policy intentions. The latter is usually called “signalling” in central bank language. I shall return to this. Transparency – being open and clear It was long common for central banks to be secretive and a little mysterious. One example, which today may sound fairly strange, is that the Federal Reserve, the US central bank, did not begin publishing the interest rate changes it had decided until 1994 1 . However, over the past fifteen years, central banks have in general become increasingly open and clear with regard to their actions and intentions. This applies both in inflation-targeting countries like Sweden and in countries that have not quantified a target, like the United States. Democratic reasons for transparency… There are several reasons for the increased openness and clarity, or transparency, as it is usually called. The most important one is probably that the central banks have become more independent in relation to the political system.