This paper discusses the central banking, monetary, and banking laws for 17 countries in Europe, an area where many of the techniques that are now universally used in regulating or controlling the supply of money and credit were developed. The complete text of the basic central bank law of each country is given, as well as the by-laws of the central bank where they supplement major provisions of the basic law, and subsidiary legislation where pertinent. General banking laws are in most instances presented in summary form.
, and instructions of the administrative board. Bank managers may not receive any share of the profits of the bank (Art. 10).
In the shareholders’ meeting of a bank no one may exercise more than one twentieth of the number of votes represented at the meeting. At least three qualified auditors, one of which shall be a chartered accountant, shall be elected at the shareholders’ meetings to examine the management and accounts of the bank for each business year (Art. 11).
The supervision of banks is entrusted to a bankinspectorate (Art. 12).
A bank may engage in
—and actively cooperating with it to provide professional expertise on financial market stability issues and to supervise payment and settlement systems. This is an alternative way of achieving economies of scale but also reflects the fact that the Finnish banking crisis of the early 1990s pointed to the need for enhanced linkages between the (then) BankInspectorate and the Bank of Finland.
The economies-of-scale argument for establishing an integrated agency in a small transition or developing country—or, indeed, any country with a small financial sector—is a strong
traditional central banking functions, including the conduct of monetary policy, and the management of the country’s foreign exchange reserves. Its balance sheet at the end of 1998 is shown in the Statistical Appendix. The Bank also acts as the borrowing agent for the Republic of Iceland in the international capital markets. Prior to the formation of the new Financial Supervisory Authority on January 1, 1999, responsibility for the supervision of financial institutions had been held by the BankInspectorate in the Central Bank.
70. The Treasury and several government
. This section discusses the framework for prudential supervision and regulation of Iceland’s financial system, and examines some indicators of the current prudential behavior of banks.
Supervision of financial institutions
114. On January 1, 1999, a new supervisory authority, the Financial Supervisory Authority (FSA), was established to supervise the activities of financial institutions. This represents a merger between the two prior supervisory entities: the BankInspectorate, which had been a part of the Central Bank, and the Insurance Supervisory Authority
Bank supply the Board with such information concerning banks, savings banks and the stock exchange as is to be had from the BankInspectorate, Savings BanksInspectorate and the Stock Exchange Inspectorate and which the Bank and the Minister find of interest to the Bank in its capacity as the central bank of the country.
In the same manner the Minister may on application from the aforesaid Inspectorates and for their use ask for such information from the Bank as is of interest for the work of supervision.
Sec. 21 . The Bank shall be exempt from any direct tax and
comprises some 120 institutions: 29 deposit money banks (commercial banks and savings banks); 4 investment banks; 9 other financial institutions, including mortgage and development credit institutions and finance companies; 14 insurance companies, and some 60 pension funds and foundations (see Table 1 ). All financial institutions operating in Iceland are under the purview of the FME, a single, unified supervisory agency which was established on January 1, 1999, by merging the BankInspectorate (previously a part of the CBI) and the Insurance Supervisory Authority
Iceland has implemented a broad-based program of financial liberalization and market reforms. Iceland's conduct of monetary and financial policies is highly transparent, which contributes in an important way to the stability and efficiency of the financial system. Both macroprudential and microprudential indicators suggest that the system may be vulnerable to a macroeconomic shock. The Icelandic financial system is vulnerable to market risk and credit risk. The government intends to use the results of the assessment to strengthen their operations and enhance improvements to the regulatory framework.
This Selected Issues paper focuses on the European Monetary Union and the monetary policy framework in Iceland. It concludes that in terms of an exchange rate regime, the two most realistic options for Iceland are to continue with the existing arrangement or adopt a unilateral peg to the euro. However, it is argued that both options entail the need for enhancing the independence of the central bank, which will require reforming the Central Bank of Iceland Act. The paper also discusses a Scandinavian forecasting model for inflation in Iceland.
authorities are also reviewing the surveillance system with a view to merging the BankInspectorate with the Insurance Supervisory Authority.
Securities market reform
164. Secondary market trading for government bonds takes place on the Iceland Stock Exchange (ISE). In February 1996, the Central Bank (CBI) agreed with three securities houses that they would assume responsibility for market making in the secondary market for long-term government bonds. The Central Bank relinquished its role as a market maker based on the judgement that the markets had developed