IMF Staff Country Reports

This paper presents Iceland’s Financial System Stability Assessment. Iceland has made solid progress since the 2008 crisis and the last Financial Sector Assessment Program update in restructuring banks and implementing important financial sector reforms. It has transposed many EU Directives and Regulations into national law, improving the regulatory, supervisory, and crisis management frameworks. Banks are resilient to solvency stress under the adverse scenario but are sensitive to interest rate changes. Liquidity stress can generally be handled but there are vulnerabilities. The value of pension funds’ assets declines substantially in the adverse scenario, reducing future pension values materially. Iceland’s robust financial system has weathered the impact of the coronavirus disease pandemic well, owing to substantially improved macro-financial frameworks since the global financial crisis.