Iceland: Financial Sector Assessment Program-Technical Note on Stress Testing and Systemic Risk Analysis

Iceland: Financial Sector Assessment Program-Technical Note on Stress Testing and Systemic Risk Analysis
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Volume/Issue: Volume 2023 Issue 276
Publication date: July 2023
ISBN: 9798400251306
$20.00
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Topics covered in this book

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Banks and Banking , Finance , Money and Monetary Policy , Public Finance , International - Economics , fair value , Bank-NBFI network , bank asset composition , bank liquidity position , Tier 1 , top-down solvency stress test , stress test , interest rate projection , sensitivity analysis , Pension spending , Stress testing , Commercial banks , Liquidity , Global , Europe

Summary

The FSAP took place against the background of a strengthened financial sector in Iceland amid heightened uncertainty in the global economy. The Icelandic financial landscape has undergone significant structural transformation since the global financial crisis with a contracted banking sector. The banking sector has deleveraged swiftly and curtailed cross-border exposure since the GFC with asset reduced from ten times of GDP to 410 percent of GDP from 2007 to 2022Q3, while pension funds have gained systemic importance with assets at 176 percent of GDP2 as of end-2022 with large holdings of public debt and close ties with the banking system. The financial system has also weathered the global pandemic on the back of strong fundamentals, while leaving uneven sectoral impact across the economy. Nonetheless, the intensified fragmentation of the global economy coupled with continued tightening of financial condition and volatile market sentiment has amplified the downside risks which may prompt knock-on effects on the Icelandic economy and financial sector going forward.