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Quite a few eyes on the Icelandic krona as the central bank in Reykjavik hiked interest rates from 13.75 per cent to 15 per cent, halting the fall of the krona against the Euro in its tracks. The stated intention is to tame inflation, which recently hit 6.8 per cent.

Having traded at close to 128 krona to one euro last week, the Icelandic currency was back below 119kr mid-morning on Tuesday.

More intriguing was a follow up statement from the Sedlabanki. Action is being taken to ease conditions in the local interbank market whereby the central bank will issue transferable certificates of deposit so as to increase the supply of “secure” short-term securities.

Accompanying this are changes to the collateral regime covering banks’ access to central bank liquidity. But it is this portion of Tuesday’s statement that looks most likely to raise eyebrows:

New rules on reserve requirements assume that the obligations of Icelandic banks´ foreign branches do not constitute a basis for reserves. This change will take effect when regular information gathering concerning the balance sheet items of Icelandic financial companies’ foreign branches has been implemented.

The purpose of the change is to co-ordinate the Central Bank’s rules with those of the European Central Bank insofar as is possible. Though no figures are currently available, it can be expected that this change will considerably lighten the reserve requirements of those banks that operate branches abroad.

That seems to say that Icelandic banks are being excused the need to provide at home for any excesses abroad - and there are some that would argue that those excesses have been extreme in recent years.

Still, at least the Sedlabanki itself  has an insurance policy in place: back in 2003 it struck a deal with other Nordic central banks whereby if one gets into trouble, the others will step in with emergency funding.