Central Bank Calls for Increased Collateral Skip to content

Central Bank Calls for Increased Collateral

The Central Bank of Iceland announced to domestic financial companies yesterday that it had re-estimated the value of unprotected stocks, which were issued by Glitnir, Landsbanki and Kaupthing banks, and calls for further collateral.

The stocks in question were estimated as worth ISK 300 billion (USD 2.7 billion, EUR 2.0 billion) but since the aforementioned banks collapsed their value has been cut by 50 percent and will therefore no longer suffice as collateral for the debts of the financial companies to the Central Bank, Morgunbladid reports.

The Central Bank granted loans to financial companies in exchange for collateral in stocks and around ISK 300 billion thereof was backed with unprotected stocks in Iceland’s three largest commercial banks, Glitnir, Landsbanki and Kaupthing, which have now been nationalized. After the nationalization process, their stocks dropped considerably in value.

The financial companies in question are, according to Morgunbladid’s sources, Sparisjódabankinn (SPB, formerly known as Icebank), Askar Capital, Saga Capital, VBS, SPRON and Straumur. The companies have requested time until tomorrow to provide collateral for the Central Bank.

“We will meet with the representatives of the Central Bank and the government,” said CEO of SPB Agnar Hansson. If the financial companies are unable to meet the demands of the Central Bank, it may have to write off ISK dozens or hundreds of billions.

“We hope it won’t come to that,” said Eiríkur Gudnason, a member of the Central Bank’s board of directors.

Click here to read more about the nationalization of the banks.

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