Monetary, Financial and Banking System of Iceland

Iceland's Financial System:

In the late 90th to the Icelandic financial system began to develop. The country, the majority of GDP is accounted for fishing, has become one of the most important financial centers of Europe. Development of the Icelandic financial system has been both positive and negative effects on the economy. The positive effect was to stimulate the economy as a whole, strengthening the banking system, raising real incomes and so on. However, this rapid development has led to the so-called Dutch disease, it is extremely weak diversification of the economy, that was the reason for this is that the crisis has hit this country is stronger than in other developed countries. In 1985 was organized by the Iceland Stock Exchange, initially as a joint venture of several banks and brokerage firms on the initiative of the Central Bank of Iceland. Financial services market is regulated by a centralized authority - the Office of Financial Supervision in Iceland.

Iceland's banking system:

Until 2006, Iceland's banking system was one of the most advanced in the world. Based on studies made by the company «Moody's» in April 2006, the three largest domestic banks, Glitnir, and Koypting Landsbaunki were in a stable financial position, but their activity is under threat of certain risks. Before the crisis, the strengths of the Icelandic banking system were: the diversification of revenues and expenditures by type of business and by geography, is a high probability of state aid in the event adversely effects in the banking system, a good financial foundation, high efficiency, high-quality portfolio of financial obligations, management of credit risks a high level, as well as an adequate level of capitalization. Before the crisis, weaknesses of the banking system of Iceland were: an imbalance in the economic and social sectors of the economy due to the retention of income and expenses at the same level and the fierce competition within the banking system.

Monetary policy Iceland:

The Central Bank of Iceland control the money supply is the Central Bank of Iceland, who coordinates the monetary policy of the country. The main objectives of the Central Bank of Iceland stabilize prices, control inflation and the rate of national currency of the country. The Central Bank of Iceland shall annually publish data on the country's money supply, as well as to assess the national currency and inflation, predict the next three years, based on studies of the dynamics of macroeconomic indicators. The main objective of the Central Bank of Iceland - price stability and keeping inflation low. Intervention in the foreign currency is permitted only if it is kept with inflation. Due to the high inflation rate the central bank's refinancing rate grew continuously until January 2009 when she sostavlyala 18% and was one of the highest in the world. After the Central Bank of Iceland several times more precise the refinancing rate, lowering it in May 2009 the rate reached 13% (the level of September 2006), and in the third quarter of 2010 the rate was lowered to 4.5%.Sufficiently stable and the European banking system.