Landsbank CEO says bank tax cuts lowered interest rates

Landsbankinn CEO Lilja Björk Einarsdóttir says it is wrong to claim that nothing happened when Iceland’s bank tax was reduced. In a LinkedIn post reported by mbl.is, she said Landsbankinn lowered interest rates on 7 April 2020, shortly after the tax was cut in March and April that year.

Einarsdóttir said the bank tax is a cost of bank funding. She estimated that the tax, a special income tax, a non-interest-bearing reserve requirement and a special payroll tax on banks together amount to 0.65% of each loan. The reserve requirement means Landsbankinn holds 43 billion krónur at the Central Bank without earning interest, she said.

A planned bank tax increase in the 2027–2031 fiscal plan would raise the combined cost to the equivalent of 0.81% of each loan, according to Einarsdóttir.

She agreed with the Central Bank governor that it is important to clarify whether the tax is indefinite, temporary but potentially subject to future changes, or set to expire automatically without further action by lawmakers. Einarsdóttir said the bank was waiting to see what the outcome would be this time.