Iceland: Financial Sector Assessment Program-Technical Note on Financial Safety Net Crisis Management

IMF Staff Country Reports, July 28, 2023

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Title: Iceland: Financial Sector Assessment Program-Technical Note on Financial Safety Net Crisis Management
Publication date on landing page: July 28, 2023
Core focus: financial safety net crisis management in Iceland.
Scope summarized: assessment and recommendations regarding the different elements of the financial safety net in Iceland.

Institutional arrangements for recovery, resolution, and crisis management.
Oversight of banks’ recovery plans.
Legal regime for bank bankruptcy and resolution.
Resolution planning by the authorities.
Funding mechanism to support resolution.
Deposit guarantee scheme.
Government authorities’ collective preparedness to deal with financial crises (including testing of plans).

The current institutional framework for crisis management lacks formal involvement of the Ministry of Finance.
The regime for banks that are systemic adheres to the internationally agreed resolution standards.
The legal regime for bankruptcy and liquidation of banks that are not systemic is sound.
The Deposit Guarantee Fund should be strengthened in line with EU requirements of the Deposit Guarantee Scheme Directive.
The authorities’ collective contingency planning for financial crisis (including testing of plans) should be intensified.

Formalize Ministry of Finance involvement within the institutional framework for crisis management.
Maintain adherence to internationally agreed resolution standards for systemic banks.
Preserve the legal framework supporting bankruptcy and liquidation for non-systemic banks.
Strengthen the Deposit Guarantee Fund to align with the Deposit Guarantee Scheme Directive (EU requirements).
Intensify collective contingency planning across government authorities, including regular testing of crisis plans.