PRESS RELEASE FROM THE CENTRAL BANK OF ICELAND:
Domestic payment intermediation between banking institutions and their customers is proceeding smoothly. The same is true of Icelandic credit card use, both domestically and abroad. When paying for foreign currency, however, cardholders must heed the exchange rate, as they always have.
At the beginning of October, the Central Bank of Iceland provided temporary support for the current contractual relationship between banks and savings banks that issue payment cards, on the one hand, and the entities that carry out settlement of card transactions, on the other. This was done in order to guarantee smooth card transactions during the current circumstances. In the Bank’s estimation, it was unavoidable at that time to lower high, unused credit limits so as to reduce risk. In the vast majority of cases, this action should have posed no problem.
Although domestic payment intermediation is proceeding normally, the same cannot be said of payments to and from Iceland. In some instances, foreign banks that are parties to payment transactions do not execute normal and appropriate orders for payment to Icelandic banks for fear that such transactions will end in a moratorium on payment on the receiving end, or for fear that the funds involved will not be transferred to the appropriate party, leaving the foreign bank liable for the error. Recipients are experiencing difficulties in making timely payment on their obligations because of this. There have been problems with payments to and from all countries; however, the situation is by far most difficult vis-à-vis British counterparties, which is directly attributable to the extremely harmful actions taken by the British authorities.
The Central Bank of Iceland has adopted a temporary method for international payment intermediation. This method involves routing banking institutions’ payments to and from Iceland through the Central Bank’s own accounts with foreign counterparts, which generally have no involvement with the operations of Icelandic banks. The Central Bank of Iceland has requested that central banks in other nations instruct their commercial banks to route payments to Iceland through Central Bank accounts. The Central Bank will ensure that payments are received by the appropriate domestic parties with the assistance of domestic banks or savings banks. This method has proven successful in transactions with Denmark, and it is hoped that transactions with other countries will prove equally successful very soon.
The difficulties accompanying payments to and from Iceland are attributable to conditions in Iceland and in other countries. The launch of Iceland’s new banks will make it possible to solve the problems that have arisen more quickly. It is necessary that the new arrangements for Kaupthing Bank’s operations be clarified as soon as possible.
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We also have an analyst here which foresaw the economic fall of Iceland for years, but when it finally arrived I think even he was surprised that it came about so quickly.
But this is good for him I suppose now he can pursue his other crusade, namely against the Baltic countries. He has foretold their economic disaster long before he went after Iceland, and actually I believe he thought the Icelandic banks would take some time consolidating their businesses.
Apparently they didn’t or didn’t have the time? who knows?
Iceland down, 3 small baltic countries to go if he is right in all his analysises.
Mark, I certainly did *not* want to say that all Icelanders are responsible for what has happened – certainly not – even though Iceland as a country has benefited very much from the growing banking sector over the last few years.
All I I wanted to do is questioning the fact that many people (certainly not all!!!) in Iceland are directing their anger towards Britain when it should be directed towards the financial policy of the last ten years or so in Iceland because. It where politicians and bankers in Iceland who made the mistake to expose the country to great potential dangers. Admittedly, if there had been no subprime crisis and if Lehman Brothers had not been allowed to go bankrupt everything *might* have worked out fine.
Yet unfortunately, the potential dangers to Iceland and its banking system have now become very real ones, and I am certainly very sad about that as I actually love Iceland, and I really hope Iceland can recover from this crisis very soon.
the writting was on the wall for iceland for many years but the sedlabanki kept on increasing interest rates despite warnings.ladies and gentlemen the future is dark for iceland no forex reserve,lame stock market,weak banks which cannot lend even between themselves.dont cry for me islandia……….
@Germany Peter
I wish you wouldn’t say things such as “icelandic people should own up”, most icelanders just watched this happening and could no more help icesave customers than they could have prevented greedy bankers for pursuing a highly risky policy.
Here is a explanation of the carry trade scam used by Iceland
http://karmabanqueradio.com/2008/10/17/max-keiser-predicting-the-iceland-collapse-in-2007/
>there was no concern as who foresaw this crisis – no one.
Well you are completely wrong there, there has been warning about the sub-prime and Alt-A loans going back 5 years. Iceland’s banks and its economy has had numerous warnings about its lack of viability.
Bankers knew the risks but choose to ignore them for this years bonus.
Iceland became very rich on the lending schemes that would only work in time of plenty, they make you very rich when things are flowing nicely. As was warned by many, this gambling could blow up in a financial crisis. Financial crisis, slowdown, recessions occur on a regular basis; by one theory they occur every 18 years and have done for the past 200 years.
So the credit crunch (and the effect on Iceland) was not unforeseen, it was expected, warned about.
The Icelandic government will no doubt try and blame everybody but itself for its troubles, but the fact is they decided to embark on a get rich scheme that was guaranteed to blow up at some point. Iceland didn’t have the GDP to bail it out and they knew it.
I believe they thought the same as you – other countries would bail them out to prevent damage to their economies.
I think Banking scam is a fair description.
Peter
Iceland has not been operating a banking scam. The route cause of this worldwide problem was the Banks of the USA who gave loans to people who were not capable of repaying them. These debts were then wrapped into the equivalent of interest paying bonds and sold to the rest of the world. This was a scam as the bonds were next to worthless. These debts were the equivalent of letting a super virus loose on the world wide web without a fix. The end result was that virtually every bank in the democratic world has gone bust. Those countries that could afford it have bailed their banks out to prevent a worldwide economic meltdown. Iceland cannot do this as it only has a population of 300 thousand. There was not a country in the world that did not know that the capital assets of Icelandic banks exceed the GDP of Iceland, there was no concern as who foresaw this crisis – no one. Furthermore there is not a bank in the world that has liquid assets capable of paying back all its depositors simultaneously. The assets are leant to fee paying clients which is where the interest from depositors comes from. The Icelandic banks experienced a ‘bank run’ no bank can withstand such a run and once assets have to be sold in a firesale they will not realise their true potential. This sorry state of affairs is not the fault of Iceland,its the fault of every Government in the world who didn’t forsee the problem. Meanwhile Iceland has been left virtually bankrupt with a population indebted in foreign loans which if the exchange rate worsens they will be incapable of repaying. This is a global problem as if the country defaults the banks who will lose are situated throughout the world. There is no gain for anyone in allowing Iceland to go bankrupt as everybody loses in this scenario. The world banks will have to agree to accept partial repayment at a rate which Iceland can afford. With this solution everybody loses a little and gains a little. In the trade they call this a compromise and the IMF need to commence these negotiations if the haven’t already. I do have sympathy with those depositors who have lost money in Icelandic Banks. BUT all depositor new or should have known that only a fixed sum of there deposit was guaranteed, they should have insured aginst this potential risk or spread there assets.
Nigel UK
“OK – Should we then go over to “Jensens”.” Well I am afraid we will have to go without “instant richness” in our cooking.
I am sure they will discuss economics on that meeting, they should also discuss other issues. Maybe we scandinavians should stick together since this is a dog eat dog world, and any small nation is wearing milkbone shorts!!!!!
OK – Should we then go over to “Jensens”. The Nordic Council will have their meeting in Helsinki Tuesday 28th of October – perhaps they should put it on top of the agenda?
“Personally, I think even if the UK apologised, the Icelandic authorities would find another excuse for not paying up – after all there appears to be no such dispute with the Dutch or Germans so why not atleast pay them.”
Well thats the real issue here, the Icelandic politicians are trying to point the blame anywhere but where its actually due.
They have already said the don’t have the money to bailout their banks and the banks were bankrupt.
The entire country was running a massive banking scam, one that was guaranteed to fail the moment there was any sort of problem.
Well, the situation in Iceland has already been much forgotten. It Iceland’s problem.
Maybe we should start our own group in all of Scandinavia? Boycott Worcester sauce (Especially Lea&Perrins because they tried to kill us all with sudan red industrial dye)!!!
Iceland and Haarde
A boycott group has started by Icesavers plus others.
Return our money.
The Russians are dragging their feet with this loan, could it be that they simply want their money back + interest nothing else? That they harbour no political motives whatsoever, and they are only in it for cash?
I believe Russia today is something completely different compared to the Soviet Union.
Wake up and smell the Vodka!
The Russians are not offering their help out of the goodness of their hearts. They will want something infinitely more valuable in return. Hold on to your sovereignty and say: Thanks, but no thanks to your “comrades” Vladimir and Dmitry!
Your ancestral brethren in Norway should step up to the plate and pull out a wad of oil money to assist Icelanders. That would make much more sense.
I have to agree with Peter (Germany) whilst Britain might not be completely blameless this continued insult throwing is pointless and letting the politicians get away (both in the UK and Iceland) with avoid dealing with the real issues.
I would strongly argue that had the Icelandic authorities not frozen the ICESAVE accounts and started a meaningful & honest dialogue with the Dutch, German’s and British) most of this pain could have been avoided.
Personally, I think even if the UK apologised, the Icelandic authorities would find another excuse for not paying up – after all there appears to be no such dispute with the Dutch or Germans so why not atleast pay them.
So I would say grow up, deal with the situation as it is & then move on.
Irina, I do not think you can really compare the situation in Germany with the situation in Iceland. If a German bank gets into trouble there is still the state that has the resources to save it (cf. IKB, WestLB, BayernLB, SachsenLB and Hypo Real Estate). For unlike Iceland Germany, the Netherlands and the UK do have a credible lender of the last resort. Given the lack of a powerful central bank and the difficult circumstances in the financial markets, Kaupthing did not have a chance to survive. This is true especially after the Icelandic government announced the emergency measures and Landsbanki collapsed. The fatal moment for the Icelandic banks was not the seizure by the British government, but the closure of the British bank accounts by Landsbanki/fme. After that, customers simply lost their trust in Icelandic banks, I am afraid.
The run on the foreign accounts of Kaupthing would have happened anyway, regardless of what the British government would do. German customers withdrew nearly half their money from Kaupthing Edge Germany after the announcement of the emergency measures.
Having said that I am not saying that others governments in Europe or the United States acted flawless, far from it. Especially the actions of the German government seem to have been quite chaotic andd driven by self-interest. It is only thanks to the vigorous leadership by France and the UK that the EU came up with a convincing rescue plan.
Irina says, “I have had no difficulties at all to withdraw money from my account or to pay with my credit card. Banking business as usual inside the country, it’s not a lie.”
Well Irina, aren’t you the lucky one! My life, along with many others, is currently on hold because, thanks to the Icelandic Government (i.e. Your representatives) I am denied access to my savings.
Peter,
from what I heard, Kaupthing had enough assets to actually fulfill all its current obligations. When the government nationalized Landsbankinn, it came together with Landsbankinn and Kaupthing before. It was decided that Kaupthing had the financial power to survive this crisis for now, wheras Landsbankinn was in much worse shape and had to be rescued. After the British Government froze the british assets of Kaupthing (they thought it might be appropriate although they had problems with a completely other bank, the landsbankinn-daughter IceSave), international lenders of course demanded their loands back immediately. No bank in the whole world would be able to pay ALL (also future) obligations at once without facing bankruptcy.
Now, you could throw in again, that this is not what you heard — it wouldn’t lead to anything. Using an anti-terror-law was definately over the line, the courts will tell. It’s an important step. It’s not about being right or wrong or solely accusing the UK for the fall of the whole banking sector in Iceland (yes, GreatDane, when exactly did I say that?). This is about legal security in insecure business times. Companies need to know, what legislation they are dealing with and in which cases which laws are applicable. Imagine, the HypoVereinsbank in the UK had liquidity problems and the UK government would freeze Deutsche Bank assets in Britain using an anti-terror-law. Germany wouldn’t be amused either. Btw, there is no law suit planned against the Netherlands.
I have to agree with the other Peter. It was absolutely clear that Kaupthing would go down as well given its extremely high dependence upon loans from other sources.
I think this dispute between Britain and Iceland does not help anyone. Nor are slogans like ‘Brown Darling, you are not welcome’ really helpful. The mistakes that have led to the failure of the Icelandic banks have been made in Iceland, not in Britain, and people in Iceland need to own up to this fact, I am afraid. Sorry to say so.
>Irina
Kaupthing were not a healthy bank. They dependant on rolling over billions of euro’s of debt by the end of the year. The CDS insurance would have required a 62.5% up front payment to guarantee any loans were repaid by Kaupthing.
That was in the week before they crashed (and many days before the British acted), they had absolutely no chance of raising any money and would have become bankrupt at any moment.
If the Icelandic PM had promised to put his entire countries economy as collateral for loans he might have been able to save something. As it was he categorically said he cannot stand behind the banks.
Peter (germany) please read what Irina wrote again.
“They feel betrayed by a friend, who is responsible for the fall of a healthy bank” By “a” I think she means Kaupting, so she is only blaming the UK for the fall of one bank.
Irina, you aren’t serious, are you? You simply cannot blame solely the British for the downfall of the Icelandic banking sector. The fall of Kaupthing was inevitable, and I am sure it would have happened even if Britain hadn’t taken control of its accounts in Britain.
I feel very sorry indeed for what has happened to Iceland, and I hope that die European Union is prepared to help your country out of its vast problems. However, I do not think it’s reasonable to make Britian a scapegoat for your current difficulties. It’s neither prudent nor fair. If anything you need the help of countries like Britain or the Netherlands, not a lengthy and costly legal dispute.
@Penn: your last comment is really “reasonable”. Also, it’s a statement of the Icelandic Central Bank, not the government.
@Mar: the Central Bank didn’t deny that they were problems with international transactions and explained the problem. Has your friend tried to transfer money through the Central Bank?
@ Peter: as far as I know from people visiting me in Iceland, some foreign banks refuse to accept the Krona and to change it to foreign currencies, since they are afraid to not being able to sell the Krona again. Foreign currencies are welcome though to be changed into icelandic Krona, if they have it “in stock”. This might be different from country to country and the exchange bureaus. But it is definately possible and very easy to use credit cards everywhere in Iceland.
@ Simon: Icelanders feel more pain, don’t worry. They feel betrayed by a friend, who is responsible for the fall of a healthy bank, that is not the parent of Icesave! Thankfully, Icelanders are naturally calm people – cashing out would bring the country to collapse, every Icelander knows that. Icelanders find themselves in very serious and difficult financial situations now, that are even beyond the british people’s imagination I suppose, but unlike british people they don’t panic easily.
I have had no difficulties at all to withdraw money from my account or to pay with my credit card. Banking business as usual inside the country, it’s not a lie.
I have heard that Icelandic banks are about to collapse, this time affecting Icelanders.
Now Icelanders should feel the same pain that Icesavers felt.
Cash out quick before there is no cash left.
What is the situation for tourists? Can you use credit cards and if so what exchange rate will be used? I’ve heard the rate is 300 buy/450sell per Euro internationally. Is there somewhere where you can get this rate or have exchanges stopped selling the Krona completely?
My friend can’t send money to his homecountry anymore.
This little report says banks are functioning ‘smoothly’. I’ve read elsewhere that people can’t withdraw any money from their accounts.
Your government is lying to you about everything.