According to regulatory agencies, it is impossible to use negotiated interest rates when recalculating currency loans, visir.is reports. They have requested that the Central Bank’s interest rate be used as the standard. The Consumer’s Association of Iceland condemns this request and says that it contradicts consumer law.
Photo by IPA.
The income to financial institutions regarding the reevaluation of indexed loans could decrease by up to 50 billion ISK should the Central Bank and the Financial Supervision Authority’s request be granted, says Gunnar Andersen president of the Authority. This is a worst case scenario from the financial system’s point of view.
Minister of Trade and Commerce Gylfi Magnússon recently told Fréttabladid that 100 billion ISK would be paid by the State.
Yesterday, the Central Bank and the FSA requested that financial institutions recalculate indexed loans using the lowest interest rates available in the current loan market. The original interest rate should not be considered.
The Consumer’s Association of Iceland calls this a declaration of war and claims that the government is defending the financial institutions at the public’s expense.
The request is supported with the argument that the move would eradicate the uncertainty which is disrupting the financial system’s stability. It is the government’s legal duty to react.
A statement issued by the government declares that it respects the independence of CB and FSA. The Supreme Court however will have the last word regarding the currency loans.
The minister says that this is a request and not the final conclusion of the matter. However, should the loans be recalculated according to negotiated rates, a large part of the banks’ funds are on the line. That is the most important thing to keep in mind.
He emphasizes that there is no chance that they will “go under” should this be the court ruling. The government, or in other words the public, would then have to pay the largest part of the bill.
On June 16th, the Supreme Court ruled that indexation of currency loans was unlawful.