a peak. in my speech at last year ’ s annual meeting, i outlined the benefits of maintaining the reserves — benefits enjoyed by many — and i also discussed the costs, which fall mainly on the central bank. these costs derive from a negative interest rate differential, as the reserves are currently invested abroad at low interest rates, while the rates on the bank ’ s krona - denominated debt are much higher. extrapolations carried out last year indicated that because of this, the bank ’ s operating results would be negative by roughly 18 b. kr. per year. new calculations indicate that this loss has shrunk to 15 b. kr. per year, mainly because the international reserves are smaller and the interest rate spread is narrower. central banks do not become insolvent in the conventional sense, even if they have negative equity ; indeed, many respected central banks have operated under such conditions for longer or shorter periods. this is because the purchasing power of the reserves is intact as regards the purpose they serve, and central banks themselves issue the currency they use to pay domestic costs. even so, it could be detrimental if the central bank of iceland has significantly negative equity, as this could undermine its independence and its ability to achieve the price stability objective. in the near future, a number of actions will be taken to improve the bank ’ s financial outcome, including through having the commercial banks participate indirectly in covering the costs of the reserves. it could also come to pass that the bank will call in a portion of the callable equity provided for by law. honoured guests : we have made significant strides in rebuilding the banking system and placing it on a stronger footing than before the financial crisis. the banks focus primarily on providing services to domestic households and businesses. they are much more resilient now than they were before. their capital ratios are well above the thresholds set by the financial supervisory authority — thresholds that are much higher than before the crisis. their liquidity position is good as well. the same can be said of borrowers, whose position has improved radically. these improvements in the banking system ’ s position play a major part in the financial stability council ’ s conclusion at recent meetings that there are few risks to financial system stability at present. nevertheless, the council has pointed out some risk factors. one of them is the high price of residential and commercial real estate, which could, in combination with low interest rates and ample collateral capacity, lead to a strong increase in

##mediation, using different types of technology. electronic kronur could play a role in this. but the topic of electronic kronur gives rise to big questions that must be discussed — questions about the possibilities for the general public to use electronic claims against the central bank ( and indirectly against the state ) as a medium of payment instead of bank deposits, and questions about the repercussions this could have on the role and stability of the banking system. the discussion promises to be an interesting one, and it is just beginning. in closing, i would like to thank the supervisory board and the monetary policy committee for their work over the past year, and i wish to thank the central bank ’ s many colleagues and collaborators for their cooperation – not least the prime minister ’ s office, the ministry of finance and economic affairs, and the financial supervisory authority. i would also like to thank the financial institutions with which the bank interacts for their cooperation. furthermore, i would like to thank the parliament of iceland, particularly the economics and commerce committee, for their collaboration. and last but certainly not least, i want to thank the staff of the central bank for a job well done over the past year.