The Council finds that activation of the systemic risk buffer for the Faroe Islands may address these structural vulnerabilities. The buffer increases the banks' capitalisation, thereby enhancing their resilience to negative economic shocks. This contributes to ensuring financial stability in the Faroe Islands.

The Systemic Risk Council recommended in March 2017 that the Minister for Industry, Business and Financial Affairs set a general systemic risk buffer rate of 1 per cent for exposures in the Faroe Islands from 1 January 2018.

In April 2018 the Systemic Risk Council recommended that the Minister for Industry, Business and Financial Affairs raise the general part of the systemic risk buffer rate to 2 per cent for exposures in the Faroe Islands with effect from 1 January 2019 and to 3 per cent from 1 January 2020.

Current systemic buffer rate in the Faroe Islands

2 per cent

On 18 March, as a reaction to the uncertainty and the challenges posed by the current covid-19 outbreak, the Council recommended the Minister for Industry, Business and Financial Affairs to temporarily reduce the systemic risk buffer in the Faroe Islands to 2 per cent.

The Minister has followed the Council's recommendation on 19 March to immediately suspend the latest increase to the systemic buffer in the Faroe Islands from 2 per cent to 3 per cent.

The Council has on 28 september 2020 decided that it will not recommend increasing the systemic risk buffer in the Faroe Islands to 3 per cent until 2021 at the earliest. Moreover, the Council has decided to provide 12 months' notification from the time it is recommended that the buffer rate be changed until the change takes effect.