Central Bank Raises Capital Buffers to Enhance Resilience

Central Bank

Iceland’s Central Bank published its semi-annual Financial Stability report today. As noted in the report, the Financial Stability Committee has decided to increase the countercyclical capital buffer rate from 2% to 2.5%, a record high. The report also notes that although the financial system is “on solid footing,” the finances of households and companies continue to deteriorate due to persistent inflation.

The Financial Stability Committee

This morning, the Central Bank’s Financial Stability Committee (FSN) released its semi-annual Financial Stability report. The report presents an overview of the position of the financial system, its strengths and potential weaknesses, and the macroeconomic and operational risks it may face.

The report notes that the “systemically important banks” – whose capital and liquidity positions are strong – have delivered solid results and managed to provide support to households and businesses, the latter of which have struggled:

“Households’ and businesses’ financial conditions are tightening because of high inflation and interest rates. The outlook is for inflation to be stubbornly high and debt service burdens to grow heavier,” the report reads.

FSN also notes that the struggle of financial companies in international markets should serve as a reminder of the need for depository institutions to maintain sufficient strength so as to fulfil their roles, and that – given that domestic demand was strong and that developments in the financial markets were uncertain – it was “important to preserve the resilience of domestic financial institutions.”

Enter the countercyclical capital buffer.

Countercyclical capital buffer

As noted in an article in Vísir, during the restructuring of the banking system after its collapse in 2008, the defences of the financial system were strengthened and various safeguards were put in place. Among other things, a so-called countercyclical capital buffer was introduced, which is a requirement that the banks accumulate capital to create buffers to enhance the resilience of the banking sector during periods of stress. It was abolished in the fall of 2020 but reinstated last year (at 2%).

As noted in the Financial Stability report, the FSN has decided to increase the countercyclical capital buffer rate from 2% to 2.5%, a record high. (The Committee’s decision will take effect twelve months from now.)

Vísir quoted Governor of the Central Bank Ásgeir Jónsson as saying that this increase should serve to, on the one hand, “slow down the banking system’s lending,” and, on the other, be of benefit in case there is “a hard landing in the economy in a year or two.” “So with these measures, we are actually trying to slow down the financial system,” Ásgeir observed.

As noted by Vísir, Ásgeir was unwilling to comment on the likelihood of the Central Bank further raising the interest rate (the decision will be announced on Wednesday next week); most forecasters expect the interest rate to rise by up to 0.75%. It would be the Central Bank’s twelfth interest rate increase in a row.

Dazzling Northern Lights to Be Visible in Iceland Tonight

Clear weather conditions and solar wind are expected to make for bright and powerful northern lights tonight, Mbl.is reports. When space is at its windiest, the northern lights are at their most beautiful, a press release from a science communicator notes.

Clear weather and solar wind

In a press release published today, Sævar Helgi Bragason – educator and science communicator (editor of the Astronomy website) – predicts that clear weather conditions and solar wind will make for dazzling northern lights tonight, Mbl.is reports.

Sævar points those interested to the Icelandic website Auroraforecast, which publishes information regarding space weather, the magnetic field, and cloud cover over Iceland. The website provides all the most important information needed for people hunting for northern lights.

“The Northern Lights are created when fast-moving ionised particles from the Sun, referred to as solar wind, collide with the Earth’s upper atmosphere. When space is at its windiest, the northern lights are at their most beautiful. This fast solar wind that we are experiencing right now can be attributed to a coronal eruption on the sun last March 11,” Sævar Helgi stated in the press release.

Questions concerning a “bright star in the west”

As noted by Mbl.is, Sævar revealed that he had received numerous inquiries from people about that “bright star that shines in the west at sunset.”

“This is Venus, the star of love. It is rising and will be prominent in the evening sky until summer. Jupiter is lower and descends rapidly in the sky until it disappears behind the sun as seen from us during the month.”

GPT-4 to Aid in the Preservation of the Icelandic Language

Alþingi parliament of Iceland

As noted in an article published yesterday, Iceland has partnered with OpenAI (the company that developed ChatGPT) to use its next-generation version of GPT in an effort to preserve the Icelandic language – and to turn “a defensive position into an opportunity to innovate.” The Minister of Culture and Business Affairs told RÚV yesterday that the partnership had proved that small nations could, if they had “done their homework,” use AI and language technology to aid in the preservation of their languages.

Turning a defensive position into an opportunity

Yesterday, OpenAI released GPT-4, the fourth in a series of the company’s multimodal large language models that powers ChatGPT, an AI chatbot launched last November. GPT-4 will initially be available to ChatGPT Plus subscribers (who pay $20 per month for premium access to the service), and it is already powering Microsoft’s Bing search engine platform.

As noted in an article published on OpenAI’s website yesterday, among those parties using GPT-4 to its advantage is the Icelandic government, which is employing this next-generation version of GPT to preserve its language. GPT-4 has made significant improvements in its ability to respond in Icelandic, improvements that are partly the result of a collaboration inspired by an Icelandic delegation’s visit to OpenAI ’s headquarters in May of last year. The delegation, consisting of Iceland’s President and government ministers, met with OpenAI’s founder, Sam Altman.

“Iceland […] partnered with OpenAI to use GPT-4 in the preservation effort of the Icelandic language – and to turn a defensive position into an opportunity to innovate. The partnership was envisioned not only as a way to boost GPT-4’s ability to service a new corner of the world, but also as a step towards creating resources that could serve to promote the preservation of other low-resource languages.”

The article also quotes Jóhanna Vigdís Guðmundsdóttir, CEO of Almannarómur (a non-profit language technology center): “We want to make sure that artificial intelligence will be used not only to help preserve language, culture, and history, but also to underpin economic prosperity.”

Better, but still flawed

As noted by the New York Times, GPT-4 has shown impressive improvements in accuracy when compared to its predecessor (GPT-3.5): it’s gained the ability to summarise and comment on images, summarise complicated texts, and is capable of passing a bar exam and several standardised tests; however, it still shows a tendency to hallucinate answers.

Likewise, GPT-4, while much better at Icelandic than GPT-3.5, still produces Icelandic with “grammatical errors, ‘translationese,’ and incorrect cultural knowledge.” To make further improvements, Vilhjálmur Þorsteinsson, CEO of Miðeind (a privately owned software company based in Reykjavík that specialises in language technology), assembled a team of 40 volunteers to train GPT-4 on proper Icelandic grammar and cultural knowledge.

In a process called Reinforcement Learning from Human Feedback (RLHF) human testers give GPT-4 a prompt, and four possible completions are generated. After reviewing the four responses, testers choose the most suitable answer and refine it to achieve an optimal completion. The insights derived from this procedure are subsequently utilised to enhance the performance of GPT-4, enabling it to generate more refined responses in the future.

As noted by OpenAI, RLHF produces results with just 100 examples, which makes it “more feasible for other low-resource languages, with less digital language data available, to replicate the process.” Prior to RLHF, the process of fine-tuning a model was labour and data-intensive. Þorsteinsson’s team had initially attempted to fine-tune a GPT-3 model with 300,000 Icelandic language examples, but the results were “disappointing.”

“Now we can just jump directly to the general capabilities of the large models,” Þorsteinsson is quoted as saying on OpenAI’s website, “and enable things with our language that used to require a lot of manual labour, data preparation, and resource collection for each use case.”

With a single round of RLHF complete, the model still has some room for improvement, which provides ongoing work for the Icelandic team: to continue to train GPT-4 with sufficient examples so that the model can power “the most complex and creative applications in Icelandic, rather than defaulting to English.”

The aim is to allow the entire country to interact with OpenAI’s models in their own language, which would, for example, save Icelandic companies from relying on English-speaking chatbots on their websites.

A “very happy day”

In an interview with RÚV yesterday, Minister of Culture and Business Affairs Lilja Alfreðsdóttir stated that she was very happy with the government’s partnership with OpenAI:

“This is what we’ve been aiming for over the last five years. The government has invested over ISK 2 billion ($14 million / €13 million) in creating this basic language infrastructure so that we can get to this point,” Lilja stated, adding that over sixty experts had been working on the project for the last four to five years.

“This was always the goal: that we could introduce our efforts to companies using artificial intelligence and language technology. We met with OpenAI and this was the result: that we’re the first language besides English that they plan to introduce. So we’re incredibly happy.”

Lilja explained that during their first meeting with OpenAI, it was clear that the company was interested in introducing a language that was not as widely spoken as English: “To show that the world is not just English. We somehow managed to talk about it in cultural, historical, and literary terms.”

Lilja added that this partnership was of great significance in an international context.

“We’re proving that small nations, if they’ve done their homework, can use AI and language technology to preserve their languages. And what our collaborators thought was so amazing was seeing all the work that we had already done – creating this infrastructure so that this technology may be harnessed.”

Does Reykjavík Have Heated Sidewalks?

heated sidewalks reykjavík

When the city of Saskatoon wanted to invest in heated sidewalks in 2013, the CBC wrote: “Imagine a city with snow-free sidewalks all winter long without having to be plowed or shovelled. This isn’t a magical land — it’s Iceland, and the City of Saskatoon is looking towards it and a few other Scandinavian countries for inspiration.”

This may have led to a perception that most streets in Reykjavík, or even all of Iceland, are heated for snow removal. While this is not the case, many of Reykjavík’s busiest streets and sidewalks are, indeed, heated.

Iceland began installing these systems in the early 2000s. And while the energy cost might be prohibitive elsewhere, the availability of environmentally-friendly geothermal energy makes the system more or less environmentally neutral once it’s installed. Additionally, around two thirds of the heated water used in these systems is return water from space heaters. The water in space heaters in homes and businesses throughout Iceland averages 35°C [95°F], making it ideal for this task.

While many new outdoor parking lots feature such heating systems, there are still plenty of sidewalks throughout the capital region without these, as many travellers discovered this winter. 

In general, only new developments and the densest part of downtown are heated. Other municipalities throughout Iceland also have such systems, but the majority can be found in and around Reykavík. Of the 920,000 m2 total area covered by snow removal systems in 2008, 690,000 m2 was in the capital area.

Approximately one-third of these systems are in use in commercial areas, one-third by private homes, and one-third are installed in public areas.


Dubliner Gunman Arrested, to Be Held in Custody Until Friday

police lögreglan

The man suspected of having fired a gun inside the pub The Dubliner in downtown Reykjavík last weekend will be held in custody until 4 PM Friday, Vísir reports. The gunman was arrested Monday evening, following a 24-hour manhunt.

Suspect fled from the scene

Shortly after 7 PM Sunday, the capital area police were notified that a man had fired a gun inside The Dubliner bar in downtown Reykjavík. The bullet struck a wall adjacent to the bar, and the shooter fled the scene immediately.

The police responded quickly, dispatching a large unit, alongside special forces and ambulances, to the scene. Although no serious injuries were suffered, two bar patrons did require treatment: one suffered a cut on his head while the other expressed concerns about his hearing.

The police later recovered a firearm near the scene.

Following a 24-hour manhunt, the gunman – who is in his late twenties – was arrested on Monday evening. After interrogations yesterday, the man was brought before a judge shortly before 5 PM. The police requested that he be detained for a week, but the judge only agreed to hold him until 4 PM on Friday.

During a statement to the news on Monday, Grímur Grímsson, the Detective Chief Superintendent, did not rule out the possibility of a connection between this event and the knife attack that took place at the Bankastræti Club last year.