Faroe Islands’ Financial Institution Risk Assessment Under Scrutiny by Systemic Risk Council

The European Union has mandated that all countries establish a macroprudential authority, and the Faroe Islands are no exception. The Faroese Systemic Risk Council has been tasked with identifying risks observed in various economic sectors, particularly those that pose systemic threats to the financial system.

What is Systemic Risk?

A risk is deemed systemic when it has the potential to trigger a widespread financial crisis, impacting not just individual financial institutions but the entire system. Examples of such risks include:

• Housing bubbles
• Deposit deficits
• Concentration of capital among a few individuals or entities

The Faroese Systemic Risk Council is working closely with the Governmental Bank to conduct comprehensive reviews of the economy and financial sector, going beyond individual institution oversight to assess risks that could impact the entire financial system and country. This proactive approach aims to prevent future financial crises and mitigate fluctuations in the Faroese economy.

Proactive Approach

In a statement, the council emphasized its commitment to ensuring the stability of the financial system by monitoring interactions between various economic actors and identifying potential vulnerabilities before they escalate into systemic threats. The council’s efforts are expected to strengthen the resilience of the Faroese financial sector and safeguard the country’s economic stability.

By taking a proactive approach, the Faroese Systemic Risk Council aims to:

• Prevent future financial crises
• Mitigate fluctuations in the Faroese economy
• Strengthen the resilience of the Faroese financial sector
• Safeguard the country’s economic stability