the monetary policy they consider to be the most well - balanced. we can have different opinions regarding the economic situation, about the impact of our interest rate policy on the economy, and about how much importance should be attached to stabilising the real economy if this involves a greater deviation from the inflation target. we may also have differing opinions on how risks not directly captured in the forecasts should be included in our deliberations. however, there is no scope for presenting six different repo rate decisions and six different repo rate paths which exactly represent the six executive board members ’ opinions. in this case the decision - making situation would be very difficult. it would probably also entail the chairman ’ s repo rate path most often being the one voted through. the chairman decides on how the different proposals should be set against one another in turn and thus has the opportunity to eliminate the alternatives in an order that increases the likelihood of his own repo rate path being in the final battle. moreover, he has the casting vote. this means that the different opinions must instead be brought together into a compromise as far as this is possible. the monetary policy reports and updates that we publish can thus be said to reflect the average stance of the members of the executive board. if one or more of us considers that the opinions expressed in the report or update differ too much from our own opinion to be able to express support from them, we must enter a reservation at the monetary policy meeting. we have, of course, also had the opportunity to put forward any dissenting opinions during a number of earlier meetings. when a member of the executive board enters a reservation at a meeting, it therefore rarely comes as a surprise to those initiated in the forecasting process or to the rest of the executive board. most of the executive board members believe that they know roughly how their colleagues on the executive board will vote at the actual meeting. this is usually true, according to the conclusions of a study made by the monetary policy department, and which is based on a questionnaire sent to all current and previous members of the executive board. 8 the reservation and motivation are published after the monetary policy meeting, in the press release and in the minutes of the meeting. important to quantify the risks normally, all risks that may have significance for the monetary policy decisions have been gone through by the monetary policy department or the financial stability department. but events may of course occur that are impossible to predict, or risks may arise at a later

1 ). most of this expansion was cross - border, and a significant part of it was actually off - border, having very little to do with iceland, as both financing and investment took place abroad. around two - thirds of the balance sheet of the three cross - border banks was denominated in foreign currency. as is typical for banks, the fx part of the balance sheet had a significant maturity mismatch. however, there was no safety - net of the type that we have at the national level to back it up. this turned out to be the fatal flaw in the whole setup. why were these big risks allowed to build up? i do not think we yet have the research and the consensus to provide a reasonably undisputed list of the main causal factors in this process ; however, i think four factors will rank highly on that list. the first of them is iceland ’ s membership in the european economic area ( eea ) beginning in 1994, which made it possible for the banks to operate more or less freely throughout the area on the basis of home licencing but with national supervision, safety net, and crisis management and resolution. the other three causes are the privatisation of the icelandic banking system in the early 2000s in a manner that placed the major banks in the hands of risk - loving investment bankers, the global conditions of ample and cheap credit that prevailed in the years prior to the international financial crisis, and the tendency in iceland both to adopt international and eu regulations without critical analysis of iceland - specific risks and to base supervision to a significant degree on mechanical checks of adherence to those regulations. in the panic that gripped global financial markets after the collapse of lehman brothers, these banks were faced with a wholesale run on their foreign currency liabilities and were therefore heading towards a default on those liabilities in the absence of lolr assistance in foreign currency. however, given the size of the banks, it was impossible for the icelandic authorities to provide such assistance on their own. there was actually a plan to nationalise one of the banks in late september 2008. fortunately it failed, as nationalising the bank would have turned a private bank ’ s foreign currency refinancing problem into a sovereign problem, with the serious risk that the sovereign might have defaulted on such foreign currency payments, thus initiating a full - scale sovereign debt crisis. figure 2 gives a sense of the potential scale involved in the case of the three banks, by comparing the foreign currency liabilities of the