currency payments is limited by the size of its reserves or the willingness of the central bank issuing the international currency in question to help. although the provision of foreign currency liquidity through reserves was clearly important during the crisis, most studies seem to support the conclusion that the dollar swap lines made the crucial difference, especially when they were uncapped vis - a - vis some key central banks. to a significant degree, this was the domestic lolr process replicated at the international level. does this mean that we have the solution? at the conceptual level, yes, but at the practical level, maybe not. the swap lines are not at present a permanent and a reliable feature of the international monetary system ; for instance, they have been strongly challenged in political discussion in the us. furthermore, there are important unresolved governance issues, such as who should decide which countries get a swap line and which do not. it is thus an important item on the reform agenda to clarify the extent to which standing foreign currency lolr facilities for solvent cross - border banks can be set up. in the meantime, cross - border banking will retreat because of this risk, and smaller countries in particular will be more reluctant to provide a home base for cross - border banks. bis central bankers ’ speeches let me now move to the eu / eea level. here the main fault line is the contradiction between, on the one hand, the area - wide permission to operate based on home licensing and a common regulatory framework ( the european passport ) and, on the other hand, national supervision, a national safety net of deposit insurance and lolr, and national crisis management and resolution regimes. the underlying principle is the same as in many other areas of the eu : an equal and harmonious competitive position throughout the area. in that ideal world, the location of headquarters and the size of a banking system relative to that of a country should not matter. the crisis revealed that this framework is deeply flawed. first, it ignores the fx liquidity risk that i discussed earlier. banks from small countries with independent currencies are more exposed to this risk than, for instance, banks within the euro are. second, country size and bank size relative to countries matter for the viability of bailout options. to take an example, the balance sheets of iceland ’ s three cross - border banks were 10 times iceland ’ s gdp, and 2 / 3 denominated in foreign currencies. nationalising them or guaranteeing their debt

indebtedness, with the associated risk of a setback followed by increased loan losses. to a degree, the authorities have responded to this risk : last year the financial supervisory authority imposed a ceiling on residential loan - to - value ratios, following analysis and discussion within the systemic risk committee, which works for the financial stability council, and upon receiving an opinion from the council. developments in the real estate market will continue to be monitored closely in this respect, and the possibility of applying additional macroprudential tools will be considered. another risk factor that the financial stability council has identified is uncertainty about future developments in the tourism sector and the potential impact that a setback in the industry would have on the position of the banking system. at the end of 2017, lending to the tourism sector accounted for 9 % of the large commercial banks ’ total lending, but because growth in tourism has eased recently, this ratio has held broadly steady. the central bank of iceland conducts an annual stress test in consultation with the financial supervisory authority, in which it examines the impact of macroeconomic scenarios on the commercial banks ’ resilience. the results are published in the autumn issue of the bank ’ s financial stability report. the last stress test assumed that there would be a recession in trading partner countries, plus a drop in major export prices and a steep decline in the number of tourists visiting iceland. in this scenario, the banks ’ capital ratios would fall by an average of 3½ percentage points, to a level close to the minimum capital ratios currently required by the financial supervisory authority. these two risks could easily occur in tandem, however. according to a new working paper by two central bank staff members, growth in private property rentals to tourists via airbnb has increased real house prices by 2 % per year in the past three years ; furthermore, it explains about 15 % of the rise in real prices over this period. 2 a contraction in tourism could therefore exacerbate a drop in house prices stemming from other causes. the impact on the banking system would then be greater. it is nevertheless unlikely that they would be unable to withstand such a turn of events, but they would probably need to use the capital buffers that are designed to cushion against such shocks. that gives rise to the question of how high the banks ’ capital ratios should be. their combined capital, including subordinated loans, was equivalent to 25 % of the risk - weighted asset base of the three systemically important banks at the end of