Iceland tightens further by raising capital buffer

      Iceland's central bank tightened its monetary policy stance further by raising banks' countercyclical capital buffer and capping the debt service-to-income ratios on consumer mortgages.
     The Financial Stability Committee (FSN), part of the Central Bank of Iceland (CBI), raised the countercyclical capital buffer on financial institutions' domestic exposure to 2.0 percent from zero, with the increase taking effect in 12 months.

      FSN also imposed a maximum debt service-to income ratio of 40 percent for first time home buyers and 35 percent for all other borrowers.

      CBI, which has already raised its key policy interest rate twice this year by 50 basis points, said the economic recovery, coupled with its accommodative monetary and macro prudential stance, had supported households and business while asset prices, including real estate prices, have risen markedly.

      "Uncertainly about financial institutions' position has receded, and loan quality has improved," FSN said, with the result they are now resilient enough to lend to households and businesses.

       In March last year CBI cut the countercyclical capital buffer to zero from 2.0 percent and today said that reduction was no longer needed.

     "The FSN is of the view that the combination of rapidly rising asset prices and increased household debt has already raised cyclical system risk to at least the pre-pandemic level," CBI added.

      The debt service-to-income ratio measures the percentage of a borrowers' disposable income that is used to make monthly mortgage payments and CBI said the purpose of the rules is to safeguard financial stability, shore up lenders' and borrowers' resilience against imbalances in the housing market, and limit the build-up of long-term systemic risk.

Europe banks continue to boost cross-border loans - BIS

     International lending by European banks, especially French banks, continued to rise in the third quarter, suggesting the contraction seen following the 2007-2009 global financial crises has now been reversed, according to the Bank for International Settlements (BIS).
     The expansion of European banks' cross-border lending comes amid an overall 9 percent rise global cross-border claims in the third quarter to $31 trillion at the end of September, the highest growth rate since end-March 2008, according to the latest International banking statistics by BIS, the Swiss-based forum for central bank cooperation.
     The global expansion in lending was mainly driven by activity in advanced economies, which rose 10 percent year-on-year in the third quarter, while claims on emerging and developing economies contracted by 3 percent, with the biggest falls seen in claims on China, Turkey and Mexico.
     As in recent quarters, lending to non-bank financial institutions continued to expand rapidly, rising by an annual 17 percent in the third quarter, outpacing the growth in claims on all other sectors.
     One of the effects of the global financial crises was that banking regulators worldwide tightened their supervision of major banks, forcing them to retreat from riskier financing operations.
     Non-bank financial firms, such as insurance companies, specialized lenders, leasing firms or institutional investors, such as pension funds and brokerage firms, took advantage of this hole in the market place.
     Following the global financial crises, European banks retreated from international lending whereas U.S. and Japanese banks continued to expand their presence, BIS said.
     For example, between mid-2008 and end-2017 German banks' cross-border claims on non-banks fell an average annual rate of 5 percent while those of Japanese and U.S. banks' claims rose an average 7.0 percent and 4.0 percent, respectively.
     But since 2018 European banks' cross-border lending has been expanding again, with an average annual growth rate of cross-border claims 9 percent by euro area banks and 11 percent by UK banks.
     French banks have been particularly active, with their claims expanding at an average annual rate of 21 percent while the claims of German banks has remained virtually unchanged, BIS said.

     To read the full BIS report, please click here.

     www.CentralBankNews.info

Nearly all major nations to implement Basel III in 2013

    Nearly all major countries will be implementing new, stricter global banking rules by the end of 2013 even if some countries will not meet the deadline of January 1, the Basel Committee on Banking Supervision (BCBS) said.
    Following a two-day meeting of global banking supervisors in Basel, Switzerland, it's chairman, Stefan Ingves, said 11 jurisdictions had now published final Basel III banking regulations that take effect on January 1, 2013 and seven other jurisdictions had issued draft regulations and indicated they are working towards issuing final versions as quickly as possible.
    "While some jurisdictions have not been able to meet the planned start date, a large number will be ready to begin introducing the new capital requirements as planned on 1 January 2013," Ingves said in a statement.
    During 2013 the remaining jurisdictions will incorporate all remaining deadlines in their national rules in line with the original agreement, even if they didn't meet the January 1 deadline, he said.
    "Hence, by the end of 2013, almost all Basel Committee jurisdictions will be implementing Basel III in accordance with the agreed timetable. This is an absolutely critical step towards strengthening the resilience of the global banking system," Ingves added.

The History of the Personal Check [Infographic]

The below infographic details the history of the personal check (also known as cheque), an instrument which has been a pivotal component of historical and modern banking, and the payment system.  While checks have become marginalized and even phased out in some countries, in preference of electronic payment systems, checks and related financial instruments (e.g. letters of credit, bills of exchange, bearer bonds, etc) remain an important tool in financial transactions and arrangements.  Central banks often have oversight of the payment system, particularly where the central bank has banking system regulatory responsibilities, and may play a role in regulating the form and function of checks, and the clearing and processing of check based payments.

Taiwan Central Bank Raises Minimum Liquidity Requirements

The Central Bank of the Republic of China (Taiwan) raised the minimum liquidity ratio for financial institutions to 10% from 7%.  The move will come into effect from 1 October 2011, and is designed to bring the statutory liquidity ratio in line with where most banks are currently operating (i.e. not in response to any rise in banking system risks).  The latest figures from the central bank indicated an overall liquidity ratio of 32.5% at the end of May.  The move is expected to strengthen risk management in the banking system over the longer term.