Stress test

The FME has calculated the effects of simultaneous shocks on capital ratios of the largest Icelandic banks as described in Rules No 530/2004, with later amendments. The shocks implies that a financial undertaking must be in a position to take on certain setbacks that simultaneously may lead to changes in the value of shares, market bonds, non-performing/impaired loans and appropriated assets and the Icelandic krona without having its capital adequacy ratio drop below 8%.

The effects of aforementioned simultaneous shocks on capital ratio are following:

Criteria based on rules no. 530/2004
20% fall in value of non-performing/impaired loans and appropriated assets
25% fall in value of foreign shares at own risk of the bank
35% fall in value of domestic shares at own risk of the bank
7% fall in value of bonds owned by the bank
20% weakening of the Icelandic krona, ISK

In addition to the formal stress tests the FME conducts various stress tests as deemed necessary in each case.