Jon Danielsson, Gylfi Zoega
Some view Iceland’s crisis as holding lessons for any country with an outsized financial sector, e.g. the UK. This column disagrees, arguing that Iceland’s downfall is explained by the way its unique history, inappropriate policy responses, and weaknesses in EU banking regulations created a perfect storm, unlikely to happen elsewhere.
Iceland underwent a systemic crisis in October last year, the only developed economy to do so in recent decades. The fate of Iceland is sometimes taken as an indication of what might happen to other countries with an outsized financial
sector, such as the UK. However, the main factors in Iceland’s downfall can be explained by its unique history, inappropriate policy responses, and weaknesses in EU banking regulations, conspiring to make a perfect storm, unlikely to happen elsewhere. Our study of the Icelandic collapse, available here, provides the details.
Historical background
Traditionally, the Icelandic economy was more regulated and politicised than economies in most other Western countries. Economic management was more based on discretion than rules, with tight connections between private sector firms and political parties. The banking system was politicised with access to capital based on nepotism and political connections.
Government control over the economy has reduced over time, with key events being the joining of the European Free Trade Association and then the European Economic Area in the early 1990s. The latter meant that Iceland got extensive access to European markets and adopted European regulations.
Iceland did however retain to some extent its discretionary approach to economic management, and its key institutions, such that the Central Bank and the financial regulator remained weaker than in most of its European counterparts.
Betting on banking
The Icelanders decided a few years ago that their economic future lay in banking and privatised and deregulated their banking system. The banks passed into the hands of individuals with little experience of modern banking, while supervision remained weak.
The role models were easy to find, other small countries, such as Luxembourg and Switzerland have done quite well out of banking. What the Icelanders forgot was that those countries have centuries worth of experience running banks and the associated infrastructure, while Iceland has less than a decade.
The banks passed into the hands of individuals with extensive business interests. The result was a system of cross holdings, with liquidity needs being met within the group. The banks retained tight connections to the political superstructure.
The banks, with strong government support, proceeded to take advantage of ample capital in international markets to fuel high degrees of leverage and exponential growth, eventually growing 10 fold in just over four years to a size of about ten times the economy.
Iceland’s institutional structure lagged behind developments in the banking sector. Neither the Central Bank nor the financial regulator developed the necessary infrastructure, nor did they receive the necessary independence and backup from the authorities to fulfil their duties adequately. This is manifested by the fact that while the assets of the banking system grew 900% as a fraction of GDP from 2003 to 2007, contributions to the financial regulator only grew by 47%.
It is now clear that the government at the time committed a classic mistake in deregulation, allowing the financial sector to undertake high-risk activities without adequate regulatory structure.
The hedge fund in the North Atlantic
The growth in the banking system affected the entire economy, with many firms and even households adopting their business model of extreme leverage driving asset acquisitions.
The country decided to stake its economic future on international banking, with all of the inherent risks ignored. It did not have institutional structure to adequately supervise the banking system nor develop the ability to provide lending of last resort services.
Iceland was in effect turned into a hedge fund sitting in the middle of the North Atlantic. It is not like the country was poor and needed high risk activities to grow. Iceland was already an affluent economy and had reached the income per capita levels of Germany, France and the UK in year 2000 before the banking sector expanded.
Unstable banking system
The three main Icelandic banks were tightly interconnected. They did business with many of the same firms, were all dependent to a varying extent on the same macroeconomy, and where perceived by international capital markets as being highly related.
A difficulty in one bank directly affected confidence in the other banks, affecting access to liquidity, and perhaps triggering bank runs. The three banks accounted for about 85% of Iceland’s financial system and there was no doubt that their failure would have catastrophic effects for the Icelandic economy.
Eventually, their hubris caught up with them. The banks started having problems borrowing in wholesale markets, and decided that opening up high interest savings accounts in the UK and elsewhere in Europe was a good idea. The Icelandic banks, with government permission, used European savers to provide the liquidity they could not obtain from the better-informed banking system.
Unheeded warnings
There were ample warnings that something was amiss. In addition to papers and interviews with local economists, a natural starting point is a critical report from the Danske bank 2006 . Aliber in May 2008 described Iceland’s banking expansion as the most rapid in the history of banking, and predicted the banks’ imminent demise. Buiter and Sibert 2008 focused on the banks’ liquidity problems caused by the absence of a credible lender of last resort.
By contrast, official reports were more favourable. The financial stability report of the Central Bank of Iceland in (April, 2008) indicated that the economy was in a good state.
The Icelandic Chamber of Commerce commissioned two reports, combining local economists with international celebrities to write reports that painted the Icelandic economy and its banking system in favourable terms, see Herbertsson and Mishkin (2006) and Baldursson and Porters (2007). While documenting the strengths of the Icelandic economy was a worthwhile task and necessary for the maintenance of confidence in its banking system, such reports may have blinded policy makers to the coming storm.
Regulatory capture
The instability of the banking system appears to have caused little concerns from the authorities. Why this is the case is unclear. After all, both the financial regulator and the Central Bank had or should have had ample information on the stability of the banks as well as the legal ability and obligation to prevent destabilising banking.
The best explanation seems to be regulatory capture. This went as far as the financial regulator even participating in the Landsbanki’s marketing of internet accounts in the Netherlands only a few months before its collapse when it should have been clear that the bank was likely to fail.
If banks are too big to save, failure is a self-fulfilling prophecy
In this global crisis, the strength of a bank’s balance sheet is of little consequence. What matters is the explicit or implicit guarantee provided by the state to the banks to back up their assets and provide liquidity. Therefore, the size of the state relative to the size of the banks becomes a crucial factor. If the banks become too big to save, their failure becomes a self-fulfilling prophecy.
The reasons for the failure of the Icelandic banks are in many ways similar to the difficulties experienced by many financial institutions globally, such as the seemingly unlimited access to cheap capital, excessive risk-taking, and lax standards of risk management.
The crucial difference is scale. While many countries have their share of troubled banks, in those cases the problems are confined to only a segment of their banking system, in economies were the overall assets of the banks are much smaller relative to GDP. In those countries the government has adequate resources to contain the fallout from individual bank failures.
Ultimately this implies that the blame for bank failures lies at home rather than internationally. We suspect that even if the world had not entered into a serious financial crisis, the Icelandic banks would have failed.
Government’s response – gambling for resurrection
Given the ample warnings the government had of the pending difficulties in the banking system its apparent lack of concern is surprising. Surely the regulator and the Central Bank knew what was happening.
The only public information we have has the Central Bank and the financial regulator blaming each other, with the government claiming not to have been informed, and blaming the global economy. We do not find his convincing. Such a catastrophic pending failure had to have been discussed by the entire Cabinet.
We therefore cannot escape the feeling that the board and directors of the Central Bank and the financial services authority, along with senior officials there knew what was happening. Similarly, all government ministers, along with senior bureaucrats in the ministries of finance, commerce, foreign affairs, and office of the prime minister had to have known.
Still the government failed to act. It could have at any point taken decisions that would have alleviated the eventual outcome. If the Government had acted prudently the economy would have been left in a much better shape.
By not addressing the pending failure of the banking system, perhaps in the hope that the instability would disappear, we cannot escape the feeling that the Icelandic authorities gambled for resurrection, and failed.
Weaknesses in European banking regulations
Iceland’s collapse also exposes fault lines in the EEA/EU approach to banking supervision. Regulations are Europe wide, with supervision in the hands of the home regulator, which can be problematic in the case of cross-border banking if the host supervisor does not have the necessary information and responsibilities or does not cooperate adequately with the home supervisor.
Within the EU/EEA regulations are mostly pan-European, but supervision (enforcement) is national. This may lead to problems where authorities in one country see that other countries have the same regulations, and implicitly assume supervision is the same. Politically it is (currently) impossible to implement Europe wide supervision.
A good example of problems that may arise is the high interest savings accounts, Icesave, set up across Europe by Landsbanki, when it was having difficulties obtaining funds in wholesale markets. According to European Union laws, the home regulator is in charge of supervision and offers deposit insurance of at least €20,887, but the host supervisor may offer more, as is the case in the UK.
After the run on Northern Rock, the UK government announced that no individual UK deposit holder would lose money in the case of bankruptcy. At the very least, this provided an implicit guarantee to Icesave depositors. In this case it would have been essential that the UK FSA also exercised supervisory duties. It is unclear to what extent this was done.
In addition, in the EU/EEA, deposit insurance is provided by a national insurance fund paid for by banks. It is unclear what is supposed to happen if the national insurance fund is not sufficient.
The authorisation of the opening of cross-border savings accounts of the magnitude and risk of Icesave represents a serious failure in the decision-making process by the supervisors in Iceland and the host countries, the UK and the Netherlands and/or in EU/EEA regulations.
The supervisors in all three countries should have recognised the dangers and acted to prevent the rapid expansion of Icesave. Ultimately supervision failed. The notion that a country of 300,000 inhabitants could assume the responsibility of providing deposit insurance of the magnitude of Icesave is absurd.
We suspect this also casts light on another failure of cross-border banking supervision in Europe. Host supervisors generally only observed the part of the banks operating in their country, not the overall picture. Some of the Icelandic banks had extensive operations of various types both within Europe and outside.
Unless an individual national supervisor has a clear picture of those operations it is difficult to exercise adequate supervision. The Icelandic regulator may have been the only supervisor that had the complete picture. If so, the only supervisor who had the necessary information failed.
Conclusion
The Icelandic economy crashed because the financial system was deregulated and privatised without adequate supervision; there was insufficient institutional knowledge, both within the banking system and within the government on how to run and regulate a modern banking system; and the government failed to recognise the systemic risk of having such a large banking system.
Ultimately, when the banks were heading for failure the government opted for gambling for resurrection rather than closing the banks down. The government’s gamble failed and Iceland as a consequence suffered a systemic crisis.
Bibliography
Aliber, Robert (2008), “Monetary turbulence and the Icelandic economy”, lecture, University of Iceland, 5 May 2008 .
Baldursson and Porters (2007), “The Internationalisation of Iceland’s Financial Sector,” The Iceland Chamber of Commerce.
Danielsson, Jon (2008), “The first casualty of the crisis: Iceland,” VoxEU, 12 November.
Danielsson, Jon and Gylfi Zoega (2009) “The collapse of a country”, www.RiskResearch.org.
Danske Bank (2006), titled “Iceland: Geyser Crisis”.
Central Bank of Iceland (2008), Financial stability report, 25 April
Herbertsson, Tryggvi and Frederic S. Mishkin (2006), “Financial Stability in Iceland,”
Zoega, Gylfi (2008), “Icelandic turbulence: A spending spree ends,” VoxEU, 9 April.
Zoega, Gylfi (2008), “Iceland faces the music,” VoxEU, 27 November.
1 The author of the report comments on it in the FT on October 8th 2008, “As a result I had to go to Reykjavik back then and got a pretty hot reception. The Prime Minister publicly denounced our research piece, and banks issued denials. … In essence two years ago all these problems were in the open. Yet Icelandic authorities have not acted and the banks were not reined in (enough).”
9th February 2009
An article taken from http://riskresearch.org/ with kind approval of VoxEU.org
wo!! this Alexander is really like having a conversation or argument with a 6 year old, you come up with such stupidities, that is just useless to have a debate with you. Example:
Comment: “The situation is difficult because of the great debt of the country and almost null forign reservs.”
Alexandres response: ” yes, but there are animals in danger of extintion every were in the world.”
What???
Comment: “yes, but endangered spicies has nothing to do with economy”
Alexander: But the situation is the same because both are in danger.”
…………WTF?
Just leave him alone, for him of course whatever is better that waiting in line for a liter of milk.
Hi Alexander
+++++
Should we compare IceSave with car repair service then? ;)
++++++
if some mastermind would find a way to offer car repair service thru the internet, well yes :-)
+++++++
PS. I have deposit with 14% at XXXXXir (can’t disclose the bank’s name). Now count how long (in years) can bank keep paying my “interest” from my own money if I don’t withdraw my deposit? Think about that ;)
+++++++
I think that, with a rate of inflation above 14 % , as has been usual in Iceland for a long time, you are even losing money on this deposit.
In the good old days the icelandic bank would exchange your krona’s into euro’s or some other currency, deposit them with a bank in the EU , get interest, cvhange back the money, keep most of it themselves and give a small part of it to you in the form of interest in krona on your deposit.
@Niels
Should we compare IceSave with car repair service then? ;)
Have Iceland placed that ad? With president’s seal and signature? Is it legal evidence – advertisement?
Like freezing assets without court order? In excess of “anticipated” damage in the rate of 4 to 1?
And if assets are 4 times higher than “damage” – why to worry? I don’t know any bank in the world with assets even equal to deposits. And here we see 4 times safety rate…
Something really doesn’t sound right.
Well, I have no problem with legal actions at all. But so far it’s more like confiscation, bolshevik style ;)
They can do that…they can… :(
In fact every bank that got “money from the government” – did exactly that.
PS. I have deposit with 14% at XXXXXir (can’t disclose the bank’s name). Now count how long (in years) can bank keep paying my “interest” from my own money if I don’t withdraw my deposit? Think about that ;)
@Alexander
It is not a very interesting discussion but yes we do seem to have different ideas about banks and shops.
Both banks and shops are part of a sector of the economy which is referred to as services. A service can consist , like you say, in providing a certain good or in keeping money save or in giving interest.
Really you do not need to have visited Harvard (and I didn’t :-) to know this. I learned this in secondary school, even in our (I admit) not very good western system of education.
In the advertisements made in Holland there was a hard mention that Iceland would guarantee the first 20.000 euro of an account, that is the way Icesave advertised here. If Icesave (Landbanki) is unable to meet this obligation, they will face legal consequences. A bank cannot simply rob you (even though they are not the very solid institutions we assumed they were).
BTW I did not deposit anything in Icesave.
I must admit that I was tempted to move 20.000 euro there but somehow I did not trust it and did not deposit.
My father (who is jewish, does not trust banks and knows about finance) even made money out of Icesave.
He was dissatisfied with the lousy 2,5 % interest which his dutch bank gave him and moved part of his savings to a competing bank.
Then he asked for a conversation with his account manager.
He told him: listen I am not satisfied with this 2,5%. Icesave is advertising 5,25 % and I have already moved part of my savings to another bank and if you do not give me a better deal I will move the rest to this Icesave.
He got 4,75 % interest after this….a rate that the bank did not even advertise, but they did not wat to lose him as a customer.
>My point is – you ASSUMED you make deposits covered by bla-bla-bla.
Ah, I see. That was not true in my case. I confirmed that to operate in the UK an Icelandic bank would either have to have a subsidiary, and so give exactly the same cover as a UK bank, or would be covered under the passport scheme.
Now you can argue that I didn’t understand that there might be wriggle room in the passport scheme for a government to not back the guarantee. I’m not bothered by that as no one else did either.
The councils may well get some back as depositors have been prioritised, just as Iceland will likely not have to ultimately cover all/any of the deposit guarantee.
Have Landsbanki released accounts similar to the 05/02/09 creditor’s report for Kaupthing?
@Alexander E
Niels understood the point I was making – I’m sorry you did not.
My comment –
“Alexander – you are correct. Comparison of Icesave with Amazon is not valid. Indeed, Amazon carry sufficient stock, and have good credit lines! ;)”
– was satirical. I’m having problems with Icelanders and satire!
>Then how you – experienced depositor – was caught so easily by the IceSave? :))
Please show where I claim to be an experienced depositor?
>My point is – you ASSUMED you make deposits covered by bla-bla-bla. But assuming and knowing are not the same. And looks like you haven’t read the rules of the game.
The rules were simple – there was a guarantee – Iceland reneged.
> PS. Looks like we agree that Councils won’t get back all their billions ;) In fact – they are YOUR billions.
I presume that is why the UK government is retaining circa 4 billion GBP as a consequence of asset seizure.
@Niels
looks like we have different view of the bank and shop functions. Whether it is internet, real or whatever form. In the store you pay to get product in exchange. When you come to the bank – you “hire” it to take your money and make profit out of it somehow. Or at least – at least! – to keep your money in safe place.
I’m not sure that you can learn it in Harvard Business School but here are some basic rules of legal robbery
1. You don’t need a knife with a greedy person – just promise him “modest return”.
2. You don’t need a knife with a fool – just promise him what he wants to hear.
etc.
In good old days “banks” were known as usurers ;)
But somehow they became “respected bankers” now :(
@Terry
Then how you – experienced depositor – was caught so easily by the IceSave? :))
@Bromley86 and Terry
My point is – you ASSUMED you make deposits covered by bla-bla-bla. But assuming and knowing are not the same. And looks like you haven’t read the rules of the game. Frankly – me neither. I just signed printed out “contract” and live the bastards all my money…
PS. Looks like we agree that Councils won’t get back all their billions ;) In fact – they are YOUR billions.
@ Alexander E
>that scheme can only be that which exists for that category of institution in the State in which that institution’s head office is situated.
The paragraph within the above article relating to your comment is reproduced below.
“A good example of problems that may arise is the high interest savings accounts, Icesave, set up across Europe by Landsbanki, when it was having difficulties obtaining funds in wholesale markets. According to European Union laws, the home regulator is in charge of supervision and offers deposit insurance of at least €20,887, but the host supervisor may offer more, as is the case in the UK.”
This is fully explained in the link provided within my last post – I do so again for your information. In addition I reproduce the relevant section.
http://blog.moneysavingexpert.com/2008/04/01/icesave-how-safe-are-your-savings-facts-and-myths/
“However, Icesave is one of a few EEA (European Econmic Area) banks, which has the passport exemption (there’s a full list in the Safe Savings guide). This means that in the unlikely event it went bust, the first E20,000 needs to be reclaimed from the Icelandic compensation system not the UK system. The remainder of the £35,000 (note- now £50,000) would still come from the UK scheme.”
> Member State must be able to excludecertain categories of specifically listed deposits or depositors, if it does not consider that they need special protection, from the guarantee afforded by deposit-guarantee schemes;
This relates to depositors – such a businesses and Local Authorities (Councils). They are not covered by the guarantee – which is intended for private depositors (the little people!)
>One more time. Have you read YOUR contracts?
I’m sorry Alexander – again, like Bromley86. I do not understand the relevance of the question. I am content to leave this with Bromley86 should you wish to take up his offer of further assistance.
>Whereas the principle of a harmonized minimum limit per depositor rather than per deposit has been retained.
> I guess this applies to Councils
No this does not apply to Councils. It refers to multiple deposits within an institution by a single depositor (covered by the gurantee).
The compensation scheme was limited to the total amount (€20,000) per depositor. If a depositor had three accounts within one institution – each account holding €20,000. The depositor would not be able to claim more than €20,000 in total. Equally – where a single bank trades under different names, for example within the UK, Lloyds, TSB, Halifax, and Bank of Scotland were all separate banks, but now form part of a group. Multiple accounts held in any of these institutions by an individual will qualify for compensation for a single limit amount. The below link, although out of date explains.
http://www.moneysavingexpert.com/savings/safe-savings#whatcounts
>@Terry
Comparing bank with Internet shop was not the strongest argument from you ;)
Alexander – you are correct. Comparison of Icesave with Amazon is not valid. Indeed, Amazon carry sufficient stock, and have good credit lines! ;)
@Alexander
no offense but i think Terry made a good point when he compared Amazon (an internet shop) to Icesave (an internet bank). The point is , both companies can work cheaper than an ordinary shopping chain/bank which has to maintain outlets with a lot of staff in expensive high streets .
So the favourable rate which icesave offered seemed to be made possible by the fact that Icesave could operate more cheaply than an ordinary bank. In fact, this is exactly an argument icesave used when it started advertising in NL.
Litterally: “icesave can offer higher interest rates because the bank has no offices, doing everything online.”
>One more time. Have you read YOUR contracts?
What point are you trying to make? I suspect that if you read and understand that legislation it’ll be answered, but if you ask me I’ll be happy to do that for you.
@Terry
Comparing bank with Internet shop was not the strongest argument from you ;)
@Bromley86 and Terry
One more time. Have you read YOUR contracts?
I guess this applies to Councils
They might place 1 trillions of billions – but each Council is juts 1 depositor.
So in any case to freeze 4 times more than deposited and without ANY proper investigation – just to save own asses – this is even worse than Stalin did with farmers. It least he took as many cows as farmer had not 4 times more :) And Stalin had the agenda!
EATING IN ICELAND IS SO CHEAP NOW!! LIKE ONE CAN GO TO THE BEST RESTAURANTS AND HAVE A GREAT DINNER FOR THE HALF OF THE PRICE YOU WOULD HAVE IT ANYWHERE IN EUROPE! IT IS CHEAPER THAN IN BULGARIA. LOOK FOR EXAMPLE, A VERY GOOD DINNER AT A VERY NICE RESTAURANT (NOT A BAR ON THE BEACH) WOULD COST YOU MORE THAN 100 EUROS IF YOU WOULD CONSUME GOOD DISHES AND VERY GOOD WINE AT A GOOD RESTAURANT IN EUROPE. HERE IN ICELAND YOU CAN GET IT FOR LESS THAN 50 EUROS… HAHAHAHA… WHERE SHOULD BE GO EATING TONIGHT??
NIELS, COME TO ICELAND! I WILL INVITE YOU FOR A GREAT DINNER!!
the following makes interesting reading:
http://www.riskresearch.org/
link: collapse of a country
@Alexander
>What exact guarantee did you get? What does it say? In small letters in particular as you’re well aware – evil hides in details. And you also should be aware that “I assume” doesn’t have much value in legal terms.
Bromley has provided the source for the guarantee in his post (thanks Bromley).
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31994L0019:EN:HTML
>I would agree to share the blame – if you asked me before placing your money in IceSave.
I understand that you bought “the reputation” and not only “modest returns”. But you just forgot that Iceland is the country whilst Landsbanki was a private gangster band :))
This is a central issue. The EU position is that the guarantee is the responsibility of the Icelandic government.
On October 7th Landsbanki was placed into receivership. On that date Mr Darling had a telephone conversation with Mr Mathiesen. Transcript as follows –
Darling: Do I understand that you guarantee the deposits of Icelandic depositors?
Mathiesen: Yes, we guarantee the deposits in the banks and branches here in Iceland.
Darling: But not the branches outside Iceland?
Mathiesen: No, not outside of what was already in the letter that we sent.
Darling: But is that not in breach of the EEA Treaty?
Mathiesen: No, we don’t think so and think this is actually in line with what other countries have been doing over recent days.
http://en.wikipedia.org/wiki/Icesave_dispute
That evening, Mr Oddsson was interviewed on Icelands RUV stated that “we (the Icelandic State) do not intend to pay the debts of the banks that have been a little heedless.
On 8th October the UK responded by freezing the assets of Landsbanki and assets belonging to the Central Bank of Iceland, and the Government of Iceland relating to Landsbanki. The Anti – terrorism – Crime and Security Act 2001 was invoked – “because the Treasury believed that action to the detriment of the UK’s economy (or part of it) had been or was likely to be taken by certain persons who are the government of or resident of a country or territory outside the UK.”
http://en.wikipedia.org/wiki/2008%E2%80%932009_Icelandic_financial_crisis
The use of this legislation has clearly caused vexation in Iceland. It is interesting to note that the Netherlands also froze Icelandic assets, without such outcry, but presumably used less inflammatory legislation. (Niels?)
As a UK citizen, I was initially surprised at the Icelandic – “We are not terrorists” response. My view was – that it was simply the most appropriate legislation available to achieve the required result. However, in retrospect, I understand that words are as important as deeds, and that whilst Icelanders may have objected with the ‘freezing’ action. It would have been better done under more specific legislation.
Indeed, relating to ‘words’ – I am uncomfortable with being accused of ‘greed’ because I deposited money in IceSave. Greed, is defined as ‘excessive desire for wealth’ – closely related to Avarice. I regard myself as ‘risk averse’ and have no speculative investments, and my savings were deposited in a bank – defined as ‘a place of safekeeping of customers’ money until required’. The adage – ‘If it looks to good to be true – it probably is”- cannot be applied to this situation. There seems to be an assertion amongst some in Iceland – that higher interest returns means that one entered into a high risk venture. Some of the biggest UK banks offered the lowest interest rates, but are the deepest in trouble (HBOS) – so I feel such a preposition is invalid.
Alexander, you made comment in a previous post to Bromley86 –
>But can you tell me why UK “depositors” rush to give their money to Icesave “bank”? The bank without physical offices.
I too, do not understand your point. IceSave was an internet venture administered from a UK base. As previously stated IceSave offered competitive interest rates, but by no means exceptional. Would you propose that I should not buy goods from Amazon, because they do not sell from local shops? Of course, we buy from Amazon because they are able to be more competitive – precisely because they are internet based – not having similar property and staff expenses.
>“…If you could make it clear that Icesave customers are fully protected up to £35k the same as customers of any UK bank and that they will be paid as quickly I’d be very grateful!”
has no legal meaning. He just quoted that someone would be gratefull!
So I ask you again – what does you contract – if any – with IceSave say?
Alexander – this is related to the comment and link provided at the beginning of this post.
>Please clarify – do you say it was Iceland that ruined solid world economy? Wow! :)
I also doubt about “democratically elected” both – Iceland and UK – governments. At least I don’t remember when Brown and Haarde were elected ;)
Of course I do not say that Iceland ruined the world economy, but many lives have been adversely affected. Fortunately, in the UK – the government have refunded all the personal savings of savers ‘onshore’. Local Authorities (Councils) had almost 1 billion GBP within Icelandic banks, and this has not yet been recovered, although I understand the UK is holding approximately 4 billion GBP, as a consequence of the ‘freezing’ of assets.
Your proposal of an exchange of debts for a share in the benefits of maintaining the economy the resources of Iceland is interesting (I think this is what the EU may wish – offering membership ;)). However, as you have intimated – the little people are not the decision makers.
Both Iceland and UK have indicated legal action to resolve matters, and perhaps this is the appropriate course to ensure that all facts become known.
>Oh now! this wordpress formatting will kill me some day! :(
I don’t know, I thought it was better than the usual single “>” that gets used here.
The “Alexander” was a joke based on your used of “banks” etc.
Yes I did deposit with Icesave. However I pulled out a couple of weeks before, not because I didn’t trust the compensation system, but because I didn’t want the extra hassle of claiming from a foreign one. My financial savvy was such that I put it all into KE :D .
As you know, the difference was that if it went under I’d be claiming from the UK FSCS, which was a risk I was willing to take. However, as the possibility of Kaupthing going under increased, I decided to move my money. I knew it was covered by the UK scheme, but my perception of the stability and propriety of Iceland was falling.
Yes that was partly Brown and Darling’s fault, but only in that they opened my eyes to the real situation. When I saw that Mathiesen had that he’d like to honour the guarantee, I could see (even if the FT couldn’t) that that wasn’t the same as saying that they would. Given that, the only thing IMO that would stop a run on KE would be if the accounts were frozen.
Well, that turned into a longer reply than I’d intended :) .
Back to the point, I don’t think I’ve been unclear on why people deposited with Icesave. It’ll be a difficult conversation if we need to state the obvious. Yes, of course, they (and I) were motivated, ultimately, by greed. But that’s what underpins every decision people make that involves the accumulation of wealth, whether it be negotiating salaries, receiving interest, investing in shares or shopping for a bargain.
They wouldn’t have done that without a deposit guarantee though :) . So were arrive back at that. Whether you like it or not (and I’m going to go with “not” ;) ), there was a guarantee. You are responsible for that, just as you’d expect me to be responsible for Brown/Darling’s action re. the freezing order if the court case goes in Iceland favour.
I believe, and I’d be happy to be corrected, that the responsibility for regulating any bank falls on the FSA in the country of origin, rather than the country of operation.
Butting into your reply to Terry, the following is a link to the EU legislation relating to deposit guarantees. So this is the answer to the question “So I ask you again – what does you contract – if any – with IceSave say?”:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31994L0019:EN:HTML
The clause that you’ll want to consider is this:
“Whereas this Directive may not result in the Member States’ or their competent authorities’ being made liable in respect of depositors if they have ensured that one or more schemes guaranteeing deposits or credit institutions themselves and ensuring the compensation or protection of depositors under the conditions prescribed in this Directive have been introduced and officially recognized;”
Oh now! this wordpress formatting will kill me some day! :(
Terry, thanks for the answer.
I always think that it’s better for us – small people – to talk in more personal way rather than deal with global political issues. It really gives much better picture and understanding. Cause you might be a Grinspen but you are human being anyway.
Not really. I just asked why did you go there ;) Whether it was foolish or well weighted decision – is up to you. I just don’t want people to blame me (as a person from Iceland) for their own decisions. I would agree to share the blame – if you asked me before placing your money in IceSave.
I understand that you bought “the reputation” and not only “modest returns”. But you just forgot that Iceland is the country whilst Landsbanki was a private gangster band :))
I’m just surprised that no other international crooks – from Russia for instance – did this. I mean – opened “bank” in Iceland and go for robbery to Britain.
What exact guarantee did you get? What does it say? In small letters in particular as you’re well aware – evil hides in details. And you also should be aware that “I assume” doesn’t have much value in legal terms.
I can assure you – this is exact perception. The filling has became a little bit mixed and distilled in recent years – but thanks to the crisis it’s getting back to the core.
You know, what surprised me the most when I came here – locals didn’t use umbrellas. When now I see people with umbrellas (foreigners) I’m surprised and think “What’s the heck they using these useless things. If you get wet – just wait and you’ll get dry again” As simple as that! And I like that simple and open approach to reality ;)
Might a good idea indeed. To build a wall between Reykjavik and Kopavogur and divide Iceland into West Iceland and East Iceland. If EU could finance the project – this could keep people here busy for a while ;)
As to leadership – we are working on it.
You can go to
http://www.borgarafundur.org/?page_id=61 and look for “Get power back to the people of Iceland” (second from the bottom)…
Thanks. Very good piece. For every dot in it.
Like ” This entry was posted on Tuesday, April 1st, 2008 at 3:59 pm” :)
OR
“The risk of it going bust, doesn’t seem to be very substantively more than any other top savings account bank and this is unlikely to happen”
OR
“Therefore, where Icesave is a best buy, it remains a best buy”
I don’t know who is this Martin, but his claim
“Bromley86”, my name is Alexander. Without “…” :) But back to “So what”?. I didn’t say what you say I said. I ASKED question WHY? Remember:
”But can you tell me why UK “depositors” rush to give their money to Icesave “bank”?
But if this is a difficult question – I have a simple one. Did you deposit money with IceSave? ;)
No problem with that. See you in the court then? :) BTW I’m sure that Brown’s mad reaction was caused by his understanding of the fact that he – as “regulator” – failed. And as such he decided to re-direct the “responsibility” from him to Iceland. And portrait himself as the nation’s guardian.
Don’t you agree that it was Britain’s regulators job to watch IceSave over there?
Of course I was joking calling you marxist but! There is always But. Banks are private entities and as such decide by themselves the course of actions. Either be careful and built long-standing reputation day by day following every dot in the books. Or play wild and hope to get away with that. And same apply to their “depositors”.
It’s really interesting to see this double-facing. When people talk about “modest return” – they behave like private persons in free market. But as soon as they loose – as the result of their OWN decisions – they immediately request government intervention and firing squads ;)
I don’t know about Britain – and I think that government there is clean and honest and full of integrity etc. But in Iceland the Chairman of the Central Bank has far too many interests in private sector (and no need to say – many of them are his relatives). And as such – it’s good only in theory that regulators regulate in fair way.
And for some reason I don’t think I surprise you with such suggestion, do I? ;)
I would prefer to discuss the rest of the answer with Terry if you don’t mind as he gave most detailed (and personal) answer. Really good one for the matter.
@Bromley
You are right, seems your dutch is better than mine :-)
I was confused by another report about a woman from Dordrecht who got her money back from icesave while the town of Dordrecht had apparently deposited with Kaupthing.
http://www.geldenrecht.nl/sparen/2877675/Goed_uiteinde_voor_Icesavespaarders.html
“Alexander”. As you say, Landsbanki did not have any offices in the UK. So what? If the deposits are guaranteed then depositors are just as safe as they would be with a high street bank. Without a guarantee scheme, having a high street branch just gives you somewhere to queue in vain when the run happens.
As to ponzi schemes, that’s what regulators are there to prevent. And courts. And prisons. And, in China, firing squads :) .
Not sure what your point is about instability? Because fixes are imperfect, we shouldn’t bother?
On your post to Niels, I doubt many people are really expecting to be able to screw Iceland into covering all the debts of the banks. AFAIK, the IMF loan holdup was over the 20k euro per depositor guarantee.
The 100% guarantee of Icelandic deposits is seen as unfair and illegal by some. Hower my reading of the legislation was that the compensation fund is not allowed to give preferential treatment. It wouldn’t be – all depositors would get their 20k euros from that compensation fund (largely funded by the Icelandic govenment), and then the Icelandic government would guarantee the rest of the Icelandic deposits seperately.
Unless the Icelandic government actually underwrote the bonds of the banks, they have no liability there. Bad news for owners of Samurai bonds, but they were investors (perhaps you prefer that to speculator?).
@ Alexander
>>”But can you tell me why UK “depositors” rush to give their money to Icesave “bank”? The bank without physical offices, ah? Were they insane? No. They were attracted by “modest returns” as you say :))
And I’m not blaming people for that. This is just a human nature (known as greed). And we are at the end of the cycle when greed fully took our minds out. Well we calle it “financial crisis” but let’s be honest.”
Alexander – There have been infrequent, but similar comments within this forum following the banking collapse in Iceland.
I had savings with IceSave, and responded to a comment similar to yours as follows –
“Effectively – you say I was foolish for not considering the Icelandic guarantee of my savings was a worthless declaration given by a bunch of charlatans.
IceSave marketed heavily in the UK, and whilst the returns offered were good – they were by no means unique. ICICI an Indian owned bank operating in the UK and fully covered by the UK guarantee – offered equal or better deposit returns. However, I still remember the India BCCI bank crash of 1991, which caused similar UK collateral damage to that of IceSave (see Icelanders – in matters of finance – memories are long).
It is true that I did not study the macroecomics of Iceland, before choosing IceSave. The guarantee looked good, and my reasoning perhaps nebulous – in that my perception of Iceland was that of an honourable little nation filled with a tenacious and clever population – part of the great solid dependable Germanic brotherhood. However, perhaps an appropriate comparison would be pre-unification East German economy and a Trabant standard banking system. East Germany resolved its problems by ridding itself of its leadership – perhaps this would be a good starting point for Iceland.”
https://www.icenews.is/index.php/2008/11/07/iceland-pm-hits-out-at-imf-rumours/
Following your comment within this forum – re USSR– the Trabant reference may have particular poignancy.
When concerns about the viability of Icelandic banks began to filter through to the public. I came across the following advice on a respected UK financial advice website.
http://blog.moneysavingexpert.com/2008/04/01/icesave-how-safe-are-your-savings-facts-and-myths/
I will not paraphrase it – other than to say – IceSave provided a strong assurance – relating to its guarantee – apparently backed up by a document from the Icelandic Financial Services Association.
What should I have made of that? Should I have considered a fellow European Nation as having no more credibility than a Nigerian scam email?
Were the Icelandic population greedy idiots, for simply accepting the golden eggs from the magical goose of their origami banks, in order to fund their extravagant lifestyles?
Maybe, we were all deceived.
However – it was your government, and your banks that wreaked destruction and hardship on your own and other countries – and in the same way that other countries bear responsibility for the actions of democratically elected government – so must Iceland.
“You are posting a lot of nonsens but you are missing the one and real issue: THE DEBTS ARE STILL THERE!!”
Niels.
I appreciate you attention towards me but try to read my nonsense with some attention, please.
Have I said otherwise about debt? Of course debt is somewhere :)
But for sure this is not MY DEBT. Neither I authorize the Icelandic government to get that burden on me (at least in April I’ll vote anyone out who wants to do that).
OK, if the rules of the game say we should pay some agreed amount – it was 2.000.000 isk at the time of the deal (if I recall correctly) – then so it be. But “bailing out” OWNERS of the Landsbanki, Glitnir, Kaupthing – sorry.
And it’s better if you go for them as it’s hard to do this from inside Iceland. As soon as you start shooting at someone here – you’ll find out you can’t do that. Cause it’s your wife’s relative! :) And when you have to choose between law and wife – well I personally know very few people who can fight his wife in the kitchen at home. Frankly – I don’t know such a man :)))
Bromley86 said:
“Well apparently there is, as you persist in seeing depositors as speculators. As I explained, taking that view is guaranteed to lead to inherent instability.”
——————————————-
Well, in the strict meaning of the word “speculate” our depositors are not speculators as
“To speculate: to engage in the buying or selling of a commodity with an element of risk on the chance of profit.”
But can you tell me why UK “depositors” rush to give their money to Icesave “bank”? The bank without physical offices, ah? Were they insane? No. They were attracted by “modest returns” as you say :))
And I’m not blaming people for that. This is just a human nature (known as greed). And we are at the end of the cycle when greed fully took our minds out. Well we calle it “financial crisis” but let’s be honest.
I admit that I keep my money in the bank with 14% return. If you are so good at finance – could you calculate at what rate bank has to speculate to get enough money to pay my returns every months and keep something for itself. Well, I suspect they just pay me back with MY money and pretend that my deposit still there :( As this is not something you can touch (and therefore count) – just numbers on the screen you can do whatever you wish with them…
I hope you know what MONEY is. Do you? Remember – sea shells? Measures of grains?
PS. As to instability – this is not the first and only trouble that happened. Any system is unstable – except dead one ;)
Niels:
“De IJslandse Kaupthing Bank heeft zowel de provincie Groningen als de gemeente Dordrecht miljoenen euro’s terugbetaald” :)
Landsbanki (Icesave) may well be paying out as well, although in the UK (and perhaps NL?) that’s unrelated to Icesave retail depositors getting their money back (as that came directly from the UK compensation scheme).
@Alexander
You just don’t know what you’re talking about , even the basic principles WTF are you smoking? Not the good stuff, most certainly.
You are posting a lot of nonsens but you are missing the one and real issue: THE DEBTS ARE STILL THERE!!
In everything you write you spread a lot of pompous nitwittism and pseudo anecdotical ‘wisecracks’ which are not funny at all while you ARE missing the point of discussions on this forum and show a great disrespect for people who sufffered from the injustices of communism and the present economic crisis .
I am not the only one pointing this out to you.
Bromley is somebody who knows his facts and comes up with solid arguments . You are miles away from that.
o and anybody who proves you wrong and exposes your lack of basic knowledge is a Marxist, yeah right.
I was never a marxist: my family ran away in time.
@Bromley
Hm, I am not sure if it is Kaupthing which started to pay back. it was Icesave and AFAIK landsbankki was behind them.
>There is no need to explain to me how financial pyramids are working ;) And what bank’s functions are.
Well apparently there is, as you persist in seeing depositors as speculators. As I explained, taking that view is guaranteed to lead to inherent instability.
Mind you, the counter argument is that without that protection the Icelandic banks could never have existed in foreign markets. That’s a moot point really though, as deposit protection is required for the home banks. Therefore it has to be in place for foreign banks.
So, that rule was in place. Iceland agreed to it (as with the whole EU discussion, they were in no way forced to). Everyone, including the Icelandic banks and government, saw those deposit guarantees as government backed. So rather than it being me trying to shift the responsility onto Iceland, it’s actually Iceland that tried to shirk the responsibility.
There was a case for that being correct. However, the EU took the position that it was not. The Icelandic government agreed (admittedly only because they wanted the IMF loan :) ).
Oh, and by “modest return” I don’t mean a nice, round figure that you produce as the top allowable rate before speculation occurs. I mean whatever the banks think it should be. After all, you can’t seriously bre expecting everyone with a couple of thousand pounds to save to be a financial expert. Which is why we have deposit guarantees . . .
Bromley86 said
“Alexander, I think you’ve missed the whole point of deposit guarantees. Depositors (not “depositors”) place their money in banks (not “banks”) to obtain a modest return.”
Bromley. There is no need to explain to me how financial pyramids are working ;) And what bank’s functions are.
What do you mean “modest return”? And who is supposed to generate this “modest return”? I don’t think that you believe money – euros, pound, dollars – are growing in the darkness of bank’s deposit boxes (like sampinjons). Someone must use the money to generate at least double to “the modest” return to be able to pay back to the bank (that cuts it’s “modest” fees) and keep something for own pleasure. If we are talking about real ECONOMY and not about financial bubble (or abscess), right?
So frankly everything above 5% – is a gamble for sure.
The fact that Icelandic banks used the loophole in the bank regulations in Europe is just an “ugly face” of “free market”. It’s silly to expect “fair play” from humans when they see possibilities of easy and fast “modern returns”. And I’m talking about all sides involved – bankers, investors, depositors etc.
That’s why I can not accept the blame that you is trying to shift to Iceland.
Just one person – Madoff – was able to fool more “depositors” than the whole Iceland. And I’m not talking about “pillar” banks of UK and USA that “wrote off” their books. The only difference with Iceland – their governments paid their casino bills with YOUR money. Icelandic government can not do this – for simple reasons. It doesn’t have that much and most important – no Icelandic politician is ready to commit suicide (political).
PS. And yes, I have rather specific view on economy. Cause I have rather specific experience – from “everything regulated” to “everything is free” and all between this two extremes. And I also have been watching humans for rather long times in rather different situations ;)
Thanks Niels. I see that that was Kaupthing though, which has AFAIK fewer problems paying back depositors than Icesave.
Alexander, I think you’ve missed the whole point of deposit guarantees. Depositors (not “depositors”) place their money in banks (not “banks”) to obtain a modest return.
If people are worried that they will not be able to withdraw their money from the banks in the future, they withdraw it now. Hence the reason for deposit insurance – as long as your deposit is less that the insured amount, you will lose nothing and so you are less likely to panic and withdraw from an otherwise healthy bank.
This is precisely the reason why the Icelandic government was so desperate to not say what they meant back in October – i.e. that their reading of the EEA rules meant that the fund was not backed by the government and was therefore effectively useless. The EU disagreed with that position.
You have a strange view of economics if everything that isn’t unfettered and unregulated capitalism is marxism.
Niels has already answered your question about transparency.
It’s good to know that icelandic banks didn’t brake any EU laws neither forced dutch and any others to put their billions into internet “banks”.
As to the secret talks I know only one kind of reason to talk in secret – when BOTH parties don’t want public to know how bad things are. But if I can understand the position of any bank – as a private entity – to save they ass..ets I don’t understand the “transparency” behind the public servants. And I think all of us agree that “authorities” ARE nothing more but public servants – your servants, guys :)
” am sorry, this is just stupidity, no banking abscess has been lanced in a satisfactory manner at the moment. The debts arre still there”
No need for sorry my dear marxist friend :) But abscesses are never lanced in satisfactory manner – someone are to be hurt.
You (and 90% of posters here) are truly marxists (Karl Marx – remember?) if you think that the government (or whole country) should pay obligations of one private entity to other private players. The government might compensate some losses to its own people – as a matter of political survival. But the rest of the world must go after private banks and their owners to try to get their money back. It’s called capitalism, guys!
I understand frustration of the “depositors” but they can blame only their own greed and stupidity (or both) and get the guts to admit – they were not smarter than a fifth grader.
The only sin of Icelandic banks was – they play in the world financial casino. As everyone else. And the only reason they became so “famous” was the relative size of their “home country”. It is the size of the country that doesn’t allows “to bail out” these crooks like authorities of UK, USA and other countries are doing (at your expense LOL). But if we look at the basics – this was casino. Huge, world scale casino. And what are the rules of any casino? DO NOT complain or do not play. But not both.
Well you can try a fair trial as well.
“PS: dutch icesavers got back their savings already before the end of 2008 and now also the local counsils are getting back (at least partly) there savings, even with interest INCLUDED! so hard negotiations do pay.”
All 1.6 billions? I’m glad for them. I just wonder where are these money are coming from.
Hi Bromley,
http://www.icelost.net/viewtopic.php?f=1&t=759
translation (more or less)
Groningen and Dordrecht get funds back
Message by Lucas on Mon Jan 26, 2009 11:48 pm
Iceland’s Kaupthing Bank has refunded millions of euros to both the province of Groningen and the municipality of Dordrecht. Groningen had 20.9 million euro released by the Icelandic bank, the town of Dordrecht received about 3.4 million euros. The northern province also received 0.9 million euro interest paid, Dordrecht polled almost two tons of interest. the two governments announced this on Monday.
>now also the local counsils are getting back (at least partly) there savings
Nice! Do you have any details, as over on my side of the Channel there’s been no mention of councils getting anything back.
@Alexander
Bromley already answered your questions it seems (and in a lot of posts on this forum you will also find answers/discussions about this topic) but since i have a helpful nature i will also answer:
all these things have been discussed at length in the press too but I don’t mind to repeat them once more.
1:Icesave (more accurately, landsbankki behind it) was not having a very sound record already at the time it was launched in the Netherlands. Therefore the dutch financial authority was reluctant to allow them on the dutch market.
Icesave however USED EU legislation : as a company from the EEA there was no legal basis to block them.
2: Inorder to limit eventual disaster in case of insolvency of Icesave (a wise idea) the dutch financial authority made a secret deal with icesave in which Icesave promissed to limit its activities to 0,6 bil euro. however icesave broke this promess and continued to attract savers. dutch authorities had no legal way to warn these savers since this would violate EU law (preventing/obstructing a company from the EEA to do bussiness inside of the EU)
So to put it simply:
Iceasave ABused an existing law and did not honour its promesses.
3:if you take a dictionary you will notice that SECRET is not the same as ILLEGAL.
These negotiations (as well as the agreement with Icesave) were SECRET in order to avoid panic: what do you think would happen if savers know that there are negotiations about the solvency of the bank where they put their savings??
There would be a run on them.
In fact, this is exactly what happened at the start of the collapse of the icelandic system (mainly in the UK) .
basically the dutch side was kind enough to keep these negotiations secret inorder not to harm icelandic interests and protect dutch savers.
However, still there is a lot of criticism in the dutch press on our financial authority since it failed to control the agreements that were made with the icelandic side.
You also write in the same post:
+++++++
PS. Iceland economy is in fact in very good shape – after banking abscess was lanced finally ;)
++++++++
I am sorry, this is just stupidity, no banking abscess has been lanced in a satisfactory manner at the moment. The debts arre still there
PS: dutch icesavers got back their savings already before the end of 2008 and now also the local counsils are getting back (at least partly) there savings, even with interest INCLUDED! so hard negotiations do pay.
I think you’ve missed the point Alexander (unless your questions were honest ones, in which case (1)None (2)Own will (3)the banks could not be legally stopped). It seems to be emerging that various EU FSAs were not totally asleep and did notice that Iceland’s banks were a less stable prospect than they appeared to be to your average depositor.
They had no legal basis to block them, but that does not appear to have stopped the FSAs from being concerned.
Hi there! ;)
“Actually the dutch financial regulatory authority was already doubtfull about icesave from the start but it could not prevent its access to the dutch market, exactly because iceland is in the EEA.
Later The authority tried to limit the growth of iceasave. in secret negotiations it was agreed that icesave would not attract more than 0,6 bil euro of dutch savings. However icesave did not honour this agreement and the authority failed to properly oversee it. When icesave failed it had collected some 1,6 bil euro of dutch savings.”
Excuse me, but could anyone explain to me two questions…nei, three questions:
1. What law if any was broken by Icesave?
2. Why did dutch place their 1.6 bil euro into Icesave? Were they forced to or did they do it by their own will and in full mental ability?
3. Why did dutch authorities have to conduct SECRET negotiations? They were illegal? Or what?
PS. Iceland economy is in fact in very good shape – after banking abscess was lanced finally ;)
>Gylfi Zoega works with Anne Sibert.
Sorry, I should clarify that I don’t *know* this for certain, but they’re both at the same University.
>Wow, those guys are really sharp.
Certainly are. Back in October when Eirikur Bergmann was getting all jingoistic in the Guardian, Jon was writing a balanced analysis.
Gylfi Zoega works with Anne Sibert.
@Fisy. I very much doubt that a person’s position on Iceland would make the slightest bit of difference to their employability in UK universities. The news from Iceland is not a big deal over here, there are more universities and there’s less einelti (I knew reading IWR would come in handy :) ). I’m not saying that that pressure doesn’t exist, just that it’s a bigger pond and there are fewer dominant fish.
As for the source regarding guarantees and reneging, I can’t say what Jon/Gylfi used. The recent Central Bank statement below shows that they were aware of the problem and tried to fix it but did not follow through. The paragraph before the quoted one indicates that the Central Bank was in communication with EU FSAs, although it doesn’t mention any guarantee that Landsbanki would de-branch the UK.
“The Central Bank of Iceland was unequivocally of the opinion that the banks’ foreign deposits should be held in subsidiaries rather than branches and that Landsbanki’s deposit business in London should be transferred to a subsidiary of the bank. The preparation for this transfer began early in 2008, and the Central Bank was informed soon thereafter of what was needed to make the change and how long it would take. Judging from discussions with senior executives at Landsbanki, the Central Bank assumed that the process had begun that spring. In July, it was revealed that this was not the case.”
http://sedlabanki.is/lisalib/getfile.aspx?itemid=6795
“Following the crash it was revealed that the Icelandic authorities had been in discussions with the UK authorities regarding facilitating the transfer of the operations of Landsbanki’s UK branch of the Landsbanki to a UK subsidiary of the bank to UK’s jurisdiction, ostensibly for the main purpose to move the “Icesave liability” from Iceland over to the UK, whatever the reason the UK may have had for this. The Icelandic authorities gave repeated guarantees that they would facilitate this, but reneged in each instance.”
“The UK and Icelandic authorities had been for some time in discussion on how to solve the difficulties facing those two banks, but, as discussed elsewhere in this paper, the Icelandic authorities were resisting addressing the issue, and repeatedly reneged on guarantees to the UK authorities.”
Nice to see the repeated guarantees and renaging mentioned but would like to know where sources are for that.
There is some real silence in that report and not rigurous refences for some assertions — as in above — but as it clearly not intended ruffle any feathurs bit like USA Today newspaper articles.
Some aspects are downplayed into understatement and reverse significance, but maybe its becose Jón and others wants to work in UK universitys.
Then thats okay, each report has its audience. When all reports coming together taken together all facts will emerge.
The above essay is timely for another reason also.
Looking from afar at David Oddsson’s recent decsion not to resign as head of the central bank, is unique to the nation’s history of charismatic tribal chiefs from different clans.
The concept of “weakness” in Iceland is ill rewarded by society. People will forgive a bull-headed or strong-minded leader more readily.
If you spend time in Greenland or Faroe Islands one quicky understands the inter-relations of such matters. However from a strictly “Western” concept of being cultured” i.e. United Kingdom or elsewhere, such a way of being perhaps seems odd.
But history gives us an important clue to such things.
Thx Bromley! Wow, those guys are really sharp. Didn’t miss anything of importance.
@Gray. It’s in the expanded version:
“Following the crash it was revealed that the Icelandic authorities had been in
discussions with the UK authorities regarding facilitating the transfer of the
operations of Landsbanki’s UK branch of the Landsbanki to a UK subsidiary of the
bank to UK’s jurisdiction, ostensibly for the main purpose to move the “Icesave
liability” from Iceland over to the UK, whatever the reason the UK may have had for
this. The Icelandic authorities gave repeated guarantees that they would facilitate this,
but reneged in each instance.”
http://risk.lse.ac.uk/rr/files/e.pdf
A very good analysis! Of course, it’s a bit short on the details that we discussed here back an forth, but that’s understandable, to report everything requires writing a book. Only one thing that really should be added imho – if The authors criticize Britain for a lack of supervision regarding Landsbanki, they should mention, too, that the Brits generously offered to include Icesave in the British guarantee fund for a relatively small one time fee. The arrogantly ignorant Icelandic government refused to lend the bank that money. Together with the refusal to request IMF support, this shows that foreign nations and entities were willing to help preventing the collapse, but Haarde and Co. were too stuck in wishful thinking to accept it.
Ok, apart from this small omission, a great report. Thx for posting this, Lenka!
Actually the dutch financial regulatory authority was already doubtfull about icesave from the start but it could not prevent its access to the dutch market, exactly because iceland is in the EEA.
Later The authority tried to limit the growth of iceasave. in secret negotiations it was agreed that icesave would not attract more than 0,6 bil euro of dutch savings. However icesave did not honour this agreement and the authority failed to properly oversee it. When icesave failed it had collected some 1,6 bil euro of dutch savings.
Some weeks before the economic collapse a dutch delegation negotiated in reykjavik, about dutch worries regarding Icesave. The icelandic side agreed to found a liquidity fund to guarantee dutch deposits. However, this was never done, it was just a lie, and the dutch side failed to control this, assuming that the icelandic side could be trusted.
Basically that is the information which at the moment we have available in the dutch media.
[…] Entranced by banking | IceNews – Daily News […]
It’s hard to argue with that analysis…