Wouter Bos, Dutch Minister of Finance, and his British counterpart Alistair Darling are blocking a €2.1bn loan from the International Monetary Fund to Iceland, Dutch paper NRC reports.
Both MPs have set a condition for Iceland to pay back citizens the money they deposited to Icesave.
On Thursday Geir H. Haarde, the Icelandic Prime Minister, said that the IMF loan and the finding of a solution to reimburse Icesave clients “are two separate things” and should not be linked.
Both the Dutch and British Ministries of Finance refused to comment on the issue officially.
The blockade came to light when members of the Icelandic Parliament attending a meeting in Brussels heard that European Union countries on the IMF board would not approve the loan until the issue of reimbursements to Icesave customers was solved.
Beware, Iceland, who you let into your banks.
http://www.rense.com/general90/isrole.htm
The western culture of greed is really to blame. Prior to the Icelandic crises I frequently asked myself why so few people questioned how a country of around 300,000 with little mineral wealth could become such a major force in both banking and business in such a short space of time.
For some reason it was never highlighted in the media whether that be in the UK or to the best of my knowledge Holland. Too many people had become self focused in their own little world & not caring a jot where the money was actually coming from. Surely it did not require the brain of a rocket scientist to work out something didn’t quite add up.
For Stan an Dario
end more . I’m not asking you to feel sorry for me.I am not Icelandic and I’m here to live with my family two sons and another on the way.I lost all my savings,was not living a great life with great cars or houses or many loans.just a family life,in my corner and within my possibilities.In 2006 I bought a house valued at 14,500,000 ISK,I made a payment of 4.500.000 ISK my debt with the bank in 2007 was 9,560,000 ISK.the value of the debt of my house today is 15,150,000 ISK.nobody will pay me my lose on Exista end strámur ,ho and I was most fortunate to have already paid my car,because I have friends who are in more difficult situations,Stan I think you’re sore from your losses as we all losse, but what is issue is find those are responsible and make them pay.Now do not think it is fair another 20 thousand euros for me to pay for something that I had nothing to do.not me my children and my family.the funny thing is that they are living in England and Brussels, and i do not think is fair I go buy a new car and send you the bill for you to pay,Stan this is happening for real Stan then before you throw stones to people who live a family live here.think just a family life,in my corner.
I suppose you are right about the “basket case mismanagement scenario”
It was gravely predicted by many in Spring 2009 that the UK require bailout loans from the IMF, for a second time.
“Don’t take IMF money!”
Nobody forces countries to take a loan from the IMF; those that do are already a basket case of mismanagement and a 50% success is probably all you could expect.
Maybe Icelands elite will steal the loan and spend it on Hookers, cars and casino’s, who knows, but the IMF will at least try to impose a regime and Iceland’s economic figures are showing a lot of improvement by following the IMF plan.
“If Iceland will not pay back their debts we will start collecting signatures to become a referendum in the Netherlands for banning Iceland to become a member of the European Union.”
UK and NL will block Iceland joining the EU (and all that grant money…), thats a given. The question is whether they should be kicked out of the EEA. Having duty free access to EEA markets and the ability to work in the EEA is a major financial benefit today. Losing that access and having probably many of thousands of expat Icelanders having to return home to unemployment in Iceland doesn’t bear thinking about.
I can’t see it happening though; Iceland will accept a deal probably the deal being offered or maybe with sweeteners such a as an oil deal. I doubt UK would be interested in oil permits in the Dragon area, its not economic and probably never will be with the rise in renewable energy.
It is actually a good thing. Look at IMF’s record, less than a 50% success rate. Worse than flipping a coin. If Iceland gets IMF money, in 5 years they will not recognize their country. Inflation will be up, social service slashed, and their currency devalued. In 10 years life expectancy will be down as will education level and money for infrastructure. Look to Russia and Jamaica as to what the IMF and World Bank do to countries. They are supposed to be different organizations but the principals often serve in leadership roles in both organizations.
Don’t take IMF money!
Countries like Iceland who doesn’t want to pay back their debts don’t belong in the European Union. Taxpayers in the United Kingdom and the Netherlands will have to pay for the debts of Iceland !
If Iceland will not pay back their debts we will start collecting signatures to become a referendum in the Netherlands for banning Iceland to become a member of the European Union.
Apparently the Icelanders have a lack of social justice and want to place the burden on the shoulders of other people. That is excactly the kind of people the European Union does not want!!!!
This situation is best described by the British saying:”penny wise, pound foolish”. Saving 1 ISK costs many ISK’s. If the citizens of Iceland think the interest is too high and want a new deal, consider the following:
1. No IMF loan means
2. Downgrading of Islandic Bonds by rating agencies like Moody’s etc.
3. Iceland unable to loan from the international capital market, maybe only for 30% interest or more.
4. ISK becomes completely worthless and Euro’s and Pounds become extremely expensive. All currencies are extremely expensive. Debt explodes beyond imagination.
5. As Iceland cannot pay for foreign goods. No trade, so nobody cares for Iceland. Complete impoverishment of Iceland.
Hey, congratulations with the “yes”.
As the English saying goes: “penny wise, pound foolish”. If Iceland thinks the rent is of payment is too high, consider the following.
Of the IMF blocks the loan to Iceland, Icelandic Bonds will become rated down. This essentially means no country or institution on the world will loan to Iceland, your currency will become worthless and debts become even higher. Iceland has to pay the Dutch And British in Euro’s and Pounds. Those currencies have to bought first. But 1 Euro or Pound might cost 10.000.000.000 ISK’s. Call that for expensive!
This is the hardest predicament a nation can ever have. Like a man hogtied with dagger on the mounth and not on the neck, one eyed jack and standing on quick sand. Whatever happens for sure it is not progress but enslavement and long hard indebtedness for generations to come. WAKE UP ICELAND. Look around and learn from the
experienced of other nations. While lots of negotiations and meetings are being made in behalf of those politicians and bankers who caused the problems and benefitted from it, living lavishly most in London and elsewhere at the expenses of the old retired people, disabled, working class who are mostly jobless, the dirt and scum of society. For once we have to make a common decision after the Joly investigation and other related on going investigations hopefully before the March 6 election to put a mark. Big mark on The face of Iceland who stood and fought with the dragons head up. Often, it is ISOLATION to be in the path less travelled by, but if we still beleived in democracy, then JUSTICE MUST PREVAIL ON COMMON GROUNDS AND NOT IN LONDON.
Bjarni says “Sir Euro is ma-ma-ma-maaad!”
SIR EURO (aka BANKRUPT NATION – I guess) is a bitter man whose comments are pointless and non-constructive. I’m still surprised that he hasn’t been banned from the forum as he always uses CAPS LOCK in his messages. It is usually not allowed in other forums. I guess it’s freedom of speech but his repeated diatribe is getting so old now…
Everybody watch out!
Sir Euro is ma-ma-ma-maaad!
BJARNI SAID: ” In fact many people believe the fund is actually a government fund and should be funded by the government, irrespective of the 94/19/EC Directive, which states that it should be funded only by the banks.”
Yes Bjarni, but you forget that the ICELANDIC GOVERNMENT TOOK OVER THE BANKS, so the government ( representing all icelanders) is responsible now for all what those banks are and did, SPECIALLY DEBTS!!!
Icelanders have tried to full many countries. NO ON TRUST ICELAND ANYMORE!! That is what you get when you don’t PLAY FAIR. And it is so funny to see icelanders still expecting other countries to borrow them more money. How are we sure you will pay back? Iceland has no credibility at all!! Why sending money to this country of wasters?? I think that money should be employed to help countries that are in real need of help. I would rather GIVE THE MONEY FOR FREE to many poor nations where people IS DYING OF HUNGER!! THAN PUT THE MONEY IN THE HANDS OF THIS ICELANDIC PIRATES SO THEY CAN KEEP DRIVING THEIR EXPENSIVE CARS, BUYING NICE CLOTHES, DRINKING CHAMPAGNE AND TRAVELLING ABROAD TO EXOTIC DESTINATIONS!!! ICELAND DOES NOT DESERVE THE HELP OF ANYONE!! LETS HELP INSTEAD THE CHILDREN OF THE WORLD WHO ARE DYING OF HUNGER IN AFRICA, NOT THIS PUNCH OF MATERIALISTIC AND SELFISH “RICH” PEOPLE OF ICELAND WHO LACK OF HUMAN SENSE AND ARE ALWAYS THURSTY FOR MORE AND MORE MONEY AND MATERIAL THINGS!!!
THEY SHOULD LIVE LIKE THE AVERAGE AMERICAN OR EUROPEAN WORKER, NOT TRY TO LIVE LIKE RICH PEOPLE ON MONEY THAT OTHER PEOPLE WORKS HARD FOR.
IT IS TOTALLY UNFAIR THAT ICELAND HAS STOLEN THE SAVINGS OF THOUSANDS OF HARD WORKING EUROPEANS, PEOPLE WHO HAS NOTHING AND LIVE LIKE MIDDLE CLASS PEOPLE WITH NO LUXURIES AT ALL, WORKING AND SAVING FOR THE FUTURE. AND THEN THIS PUNCH OF PIRATES WITH NO SENSE OF SHAME DON’T WANT TO PAY BACK AND WANT MORE MONEY!!!
SHAME ON YOU ICELAND!!
“While the men that are truly to blame end up with a torn shirt pocket, special handshake and a huge swiss bank account.
The Icelandic People are suffering too! We all need to educate ourselves a bit more and truly realize who the enemies are, or we will never be able to engage them and conquer them.”
WELL if you are a factory worker without education and the bank gave you the money so you could buy a nice BMW and a very nice home. What do you expect?? specially when you did not care for saving a PENNY!! Of course someone like that will suffer sooner or LATER!!! BUT, do I feel sorry for IGNORANT AND IRRESPONSIBLE PEOPLE WHO HAS A LOW IQ , and drive their fancy JEEPS AROUND FEELING THEY ARE SOME HOLLYWOOD STAR? HAHAHAHAH HAHAHAHAH HAHAHAH HAHAHAH : ))))))) HAHAHAHAH :))))))
MOVE ON MAN!!! GET YOUR AS- TO WORK, STOP COMPLAINING AND GET YOURSELF A SECOND HAND LITTLE CAR LIKE MOST OF THE EUROPEAN WORKERS!!
Mr Spaguetti said: “One little point…. Iceland is not some entity with one consciousness! And when people here say things like “Iceland has to pay!!!” I feel that they cant quite grasp the whole reality of the situation”
The government of Iceland is democratically elected by icelanders. Therefore it is the government the institution representing ALL icelanders. When people say ICELAND PAY it literally means the COUNTRY to pay its debts. Informed or not, all the citizens of Iceland participate of the common responsibilities of the government they have elected to rule the country and represent them internationally.
It is so funny to see how icelanders were so happy with their government, when they were told they were THE RICHEST PEOPLE IN THE WORLD. They all got in huge debts, buying stuff they could not pay. And this applies for the GREAT MAJORITY of icelanders. Guess why are they having such bad times now?? because people here where buying and buying and buying stuff, they had no credit limits at all, they got 100% loans for buying expensive homes ( some bought themselves apartments and villas in other countries) and cars, travelling abroad, and anything they want… WITHOUT ASKING THEM FOR ANYTHING TO BACK THEIR PAYMENTS.
NOW THAT THE SHOW HAS ENDED, and the lights are on, is were we see the reality: A NATION OF VERY MATERIALISTIC PEOPLE WHO WAS LIVING ON CREDITS, MONEY THAT CAME MAINLY FROM EU SAVERS!!. Now they see themselves they HAVE NOT SAVED MONEY, THEY ONLY HAVE DEBTS!!! Huge debts to pay and:
1. they are trying not to return the money back. HONES EU SAVERS MONEY!!! from pensionists who have been saving for their retirement, and from honest workers that were dreaming about buying their first homes, etc…
PAY ICELAND PAY!!
2. They are so crazy, and they don´t want to accept to live as the average european worker. THEY WANT MORE MONEY TO KEEP GOING ON WITH THEIR MADNESS, AND LATER KEEP TELLING EVERYONE THEY ARE THE RICHEST COUNTRY IN THE WORLD…
HAHAHAHHAHAAH, HAHAHAHAHHA, I LAUGH MYSELF TIL MY STOMACH HURTS!!!
What a punch of IGNORANTS, what a LACK OF MODESTY!! I HOPE NO ONE IN THE WORLD WOULD GIVE MORE MONEY TO ICELAND BECAUSE THEY DON´T DESERVE IT!! WHAT ICELANDERS DESERVE IS TO GO TO WORK LIKE THE AVERAGE EU CITIZEN, AND DON’T BUY A MERCEDEZ BENZ OR A VERY NICE JEEP TO GO TO WORK WHEN YOU ARE JUST A FACTORY WORKER WITHOUT EDUCATION!!!
One little point…. Iceland is not some entity with one consciousness! And when people here say things like “Iceland has to pay!!!” I feel that they cant quite grasp the whole reality of the situation. There are so many people in Iceland right now (the ones that are well informed and even others too) that are crying out for the people responsible for this mess to be made accountable for their actions. Businessmen and Politicians alike. That’s what needs to happen…
I can very much understand people being angry about their savings disappearing. That is so very wrong! But, lets be educated enough not to blame a nation of people for something done by a corrupt few. And these “Economic Hitmen” continuously get away with this sort of crap while the nations hit by them are left having to selling all their natural resources and even their whole infrastructure to the all mighty international conglomerates. While the men that are truly to blame end up with a torn shirt pocket, special handshake and a huge swiss bank account.
The Icelandic People are suffering too! We all need to educate ourselves a bit more and truly realize who the enemies are, or we will never be able to engage them and conquer them.
To Jim:
>>>>One more question – you state that “In the event of the total assets prove insufficient, the directors for the fund, may decide to take out a loan in order to compensate losses suffered by claimants. There is NO mention anywhere in the law, that the Icelandic government is in ANY WAY required to step in and cover any payments for the fund or or the depositors!” – i.e. the Icelandic government does not have to pay a penny to foreign depositors. Why did Haarde say that Iceland will “honour its obligations” – if there aren’t any – why was there such outrage when Darling doubted that “Iceland will honour its obligations”?
The crux of the problem is really about exactly what those obligations are. Iceland is defining them very narrowly (it simply has to if it wants to stay out of bankruptcy), while UK and Netherlands think the obligation should cover at minimum 20K euros per depositor and possibly more. In and by itself the word “obligation” doesnt mean anything. It can only be defined by interpreting the relevant laws and regulations.
Bjarni
lol= laughing out loud!”The EU countries are demanding that the banks provide compensation.” Iceland, are you awake? It is a shame that you have to be reminded to pay your debts. ANY civilized, decent country already knows that.
EU tells Iceland to resolve deposit disputes
5 hours ago
BRUSSELS, Belgium (AP) — A top European Union official told Iceland on Wednesday it must settle disputes with EU nations over clients who lost money in Icelandic banks before it can have planned loans approved.
Savers in Britain, the Netherlands and Belgium fear they lost their money when several Iceland-owned banks collapsed last month. The EU countries are demanding that the banks provide compensation.
Iceland is appealing for $6 billion in aid to help it salvage its financial system.
European Commission President Jose Manuel Barroso said the aid could only go ahead “after Iceland and some EU member states reach an agreement on … issues related to deposit guarantee schemes and protection of foreign depositors.”
The EU chief said he had received a letter officially requesting aid from Iceland’s Prime Minister Geir H. Haarde earlier this month. He made the comments after holding talks with Norway’s Prime Minister Jens Stoltenberg.
http://ap.google.com/article/ALeqM5gtckK-iyxCgQpSOy6BR3YOui8BLgD94DFU1O0
Re. solvency and Kaupthing Edge (and therefore Kaupthing hf), even if there was no run on the 7th/8th (and there probably was)there would have been one on the 9th.
I know the guarantees were different (i.e. KE was covered by the UK FSCS), but with 2 out of 3 banks down and a question over the Icelandic government’s ability to honour the passsport scheme, people would get out.
Frankly, that was probably going to happen even if Iceland had strongly stated that the guarantee would be honoured for Icesave. No one would want to take the risk of having to wait to collect from a stretched FSCS (as it turns out, they’ve been very fast, but we didn’t know that).
Anyway, short story is that even if Kaupthing was solvent, it wouldn’t have been in a day. The IoM branch (KSF) was hemorrhaging £30-40m a day and the run there had just started.
@Bjarni
Actually, both Landsbanki and Kaupthing have stated that they were in fact fully solvent at the time their assets were frosen by the Icelandic and UK governements.
As far as I know there was ongoing bank run on icesave deposits, since people freaked out because of glitnir. This alone made landsbanki insolvent.
As with the lawsuit against iceland government, yes, I agree, bank might have the case here, as the action was intentionally designed to prevent them from going into ordinary bankrupcy, as now seems.
Bjarni. The directive doesn’t exclude local governments, police etc. – it says “Member States may provide that certain depositors or deposits shall be excluded”.
Not that that matters. The Icelandic law may well elect to exclude them and, even if it doesn’t, the guarantee would still only be for 20k euros for each institution (i.e. peanuts).
Hi Bjarni,
One more question – you state that “In the event of the total assets prove insufficient, the directors for the fund, may decide to take out a loan in order to compensate losses suffered by claimants. There is NO mention anywhere in the law, that the Icelandic government is in ANY WAY required to step in and cover any payments for the fund or or the depositors!” – i.e. the Icelandic government does not have to pay a penny to foreign depositors. Why did Haarde say that Iceland will “honour its obligations” – if there aren’t any – why was there such outrage when Darling doubted that “Iceland will honour its obligations”?
To Knowless:
>>>>What are the reasons some people offer to support the claim that Iceland did not ensure that the conditions of the directive were met?
Good question! The main reason I have heard, is that the some people believe that the fund is absolutely required to pay the 20K Euros. Since the fund cannot, they believe that the Icelandic government should be absolutely be required to step in and cover any shortfalls in the Deposit Guarantee Scheme Fund, irrespective of any other considerations. In fact many people believe the fund is actually a government fund and should be funded by the government, irrespective of the 94/19/EC Directive, which states that it should be funded only by the banks.
Some of the countries (UK/Netherlands) also believe, that the Icelandic government should also cover ALL the deposits, even those that are specifically excluded by the Directive (local governments, police, etc.)
The position of the Icelandic government is, that the Icelandic Deposit Guarantee Scheme Fund, does indeed fulfill all the conditions, as they are actually stated in the EU Directive. There is nothing in the Directive that that says any government HAS TO cover any shortfalls. And in any case, the stated purpose of the EU Directive was to harmonize the guarantees and provide stability for the banking system, not to actually bankrupt the country.
To bc123a:
>>>>No bjarni, you are wrong. Every company HAS TO DECLARE BANKRUPTCY to get bankruptcy protection, and preserver its assets.
Actually, both Landsbanki and Kaupthing have stated that they were in fact fully solvent at the time their assets were frosen by the Icelandic and UK governements. Both banks are now preparing lawsuits agaist both the governements for damages. When the cases will be finally heard, we will hopefully find out who was correct.
>>>>It is the norm of the free market everywhere in the western world. I guess icelandic government purposely put their administrators into banks to prevent managements to declare bankruptcy, as of that moment, all deposits (even icelandic) would be irreversibly frozen.
>>>>The fact that the government did this, or at least, condoned this, is something for which I cannot cite you any law about, but please, we are talking about minimum legal standards in trade and free market.
Every government has the power to declare emergency when a disaster strikes. This action was absolutely necessary to keep the whole economy from collapsing. If you do not have any banks operating, you cannot work, you cannot buy goods, you cannot sell goods. For the Icelandic government, this was simply not an option.
>>>>Again, it is duty of the company to seek bankruptcy PROTECTION by declaring insolvency. And government should force banks to do this, if they were not willing to – but I suspect they were about to declare insolvency, and the government prevented this, so they can siphon the funds to the iceland account holders.
No funds are being siphoned away! If you read my earlier posts about actual emergency laws that were passed and the resulting FME decisions, you will see the new banks will be required to pay the old banks fair value for any assets, as estimated by appointed Certified International appraisers.
http://www.fme.is/?PageID=867
http://www.fme.is/lisalib/getfile.aspx?itemid=5731
http://www.fme.is/lisalib/getfile.aspx?itemid=5746
To Jim,
No, I am not the Bjarni with Iceland Review, just one of those strange people that happen to believe in reading up on the facts before forming my opinions :-)
Bjarni
Bjarni,
Thanks for the links. So Landsbanki was not nationalised, but is in the hands of the Icelandic government…
I wondered why you are so doubtful of journalists, by the way, – are you the Bjarni who writes for Iceland Review:
http://www.icelandreview.com/icelandreview/daily_life/?cat_id=16567&ew_0_a_id=315265
bc123a Phew! yes we are on the same page – thanks :-)
@terry, sorry, I misunderstood your position :) I thought you are comparing UK with zimbabwe.
Yes, I agree, especially regarding the conspiracy theories…
@Terry,
if you don’t understand what I written (for a third time), then it probably does not make any sense to continue.
People are exchanging links about EEA guarantees and so forth, but almost everyone has missed the main fact that holds iceland away from IMF money: the fact that their government continues to suck the bank’s assets while foreigners can only watch in dismay. On the other hand they are filling the heads of icelanders with stupid propaganda about terrorist lists and the idea that this is the reason iceland cannot do business with the world.
Please!
No one will do business with the country, as long as there is the bunch of blood sucking weasels in power. No one will ship anything to iceland, if it is not prepaid, as the action of government clearly has shown, that it is willing to break all norms of the trade with the excuse “we have no money and we are in worse shape than you so we will take it”.
Imagine why would barilla ship a load of pasta to iceland, just to be practically confiscated with excuse “we are hungry and we have no money to pay you, thankyou”.
@bc123a – Funny you should mention Zimbabwe. There are many similarities – economy – UK conspiracy theories & Icelandic President Olafur Ragnar Grimsson seems to have Mugabes subtle diplomacy skills in respect of his offer to Russia in respect of Keflavik airbase. Perhaps Reykjavik and Harare should consider a ‘Twinning’ arrangement?
@bjarni,
It is not the responsibility of the Icelandic government to declare the old banks bankrupt.
No bjarni, you are wrong. Every company HAS TO DECLARE BANKRUPTCY to get bankruptcy protection, and preserver its assets.
It is the norm of the free market everywhere in the western world. I guess icelandic government purposely put their administrators into banks to prevent managements to declare bankruptcy, as of that moment, all deposits (even icelandic) would be irreversibly frozen.
The fact that the government did this, or at least, condoned this, is something for which I cannot cite you any law about, but please, we are talking about minimum legal standards in trade and free market.
Again, it is duty of the company to seek bankruptcy PROTECTION by declaring insolvency. And government should force banks to do this, if they were not willing to – but I suspect they were about to declare insolvency, and the government prevented this, so they can siphon the funds to the iceland account holders.
Mark my words, if your government do not come to your senses, you will be in very bad shape in a few months.
Had the government declared bankrupcy, I guess no seizures of assets outside would happen, as with the moment of bankruptcy, all assets would be frozen under the icelandic law, and the creditors would be equally protected.
Icelandic government prevented this, and thus enraged foreign governments, and it still continues to siphon the bank assets by allowing icelanders to raise money out of the technically insolvent banks.
This is Zimbabwe style economy, mark my words, and IMF refusal is no surprise to me.
To Bjarni
You wrote earlier
“…ensuring the compensation or protection of depositors under the conditions prescribed in this Directive…”
‘So if Iceland fulfills the ensuring part “under the conditions prescribed in this Directive” then its off the hook legally, and is not required to pay anything. If Iceland does not fulfill the conditions, then its on the hook legally. Iceland has always said it is willing to pay what it is legally required to, so this sounds fine to me.’
————————————————
What are the reasons some people offer to support the claim that Iceland did not ensure that the conditions of the directive were met?
To Scottish Icesaver:
>>>>Am I wrong about the timing of the bond issuance being within 30 days of the extablishment of the alleged ‘new’ bank? If I’m not wrong this deadline/committment has been missed.
The second decision (itemid=5746) changed it to 90 days. They were probably way too optimistic in the first decision, considering the complexity of the task.
>>>>It seems the supervisory authorities are changing a few times exactly which assets belong to the supposed new banks vs the existing banks. I’m not sure this will look good in any legal setting.
With the first decision (itemid=5731), which was basically done under extreme time pressure, it was pretty clear that it could not contain the final accurate list of all the assets and liabilities. They seem to have anticipated changes would be needed, and therefore included the following the sentence at the end:
“This decision is based on available information and data. Should it prove to be based on insufficient
or wrong information on merits or other underlying premises of the decision turn out to be
fundamentally inaccurate the FME may make any changes to this decision, including nullifying it in
part or in whole.”
I would not be surprised if some lawyers will be having field day with all this at some point in the near future. :-)
To me, if they will be able to estimate the values of the assets and liabilities accurately in the end and issue the bond based on on good estimation of the fair value, I will be satisfied.
To Bjarni
“In previous decisions by the FME, specify the new banks will be required to issue a bond to the old banks for the final estimation of any difference between the transferred assets and the liabilities.
http://www.fme.is/?PageID=867
http://www.fme.is/lisalib/getfile.aspx?itemid=5731
http://www.fme.is/lisalib/getfile.aspx?itemid=5746”
Am I wrong about the timing of the bond issuance being within 30 days of the extablishment of the alleged ‘new’ bank? If I’m not wrong this deadline/committment has been missed.
It seems the supervisory authorities are changing a few times exactly which assets belong to the supposed new banks vs the existing banks. I’m not sure this will look good in any legal setting.
Sorry I don’t have time to look into the full details of all the interesting info you have posted.
“- Certified international estimators have been appointed to estimate the true value of the assets and liabilities. After their work is done the final balance sheet of the new banks will be published.”
This will be very interesting. Let’s hope there will be some positive news in this.
“The UK and Germany haven’t said that this is the case.”
The total lack of public announcements from Germany should make you suspicious, Bromley. I don’t like Merkel very much because she simply isn’t the force for reforms that we need now, but she certainly is a determined agent of German interests and very skilled in using power behind the scenes. Actually, that’s the characteristic that made her chancellor.
So, a lack of public news doesn’t say that nothing is going on. Merkel certainly is aware of the volume of credits by German banks, and knows that it’s important for securing those credits that Iceland implements reforms that put the economy on the right track again. And you can bet that she wouldn’t hesitate to use the IMF loans as a lever to apply pressure. The only qestion is if the whole effort isn’t totally wasted because of the incompetence of the Haarde administration.
Some interesting thoughts. Merits of liturgical discussion around whether the EEA directive and subsequent political statements may not matter.
The Icelandic goverment simply cannot afford to pick up the tab for UK Goverment promises to refund the entire UK Icesave creditor. Whilst leverage factors of 24-28 times are (sorry…were) common in US banking 2006-8, the subsequent deleveraging and reduction in credit availability (international wholesale) have destroyed a few banks, in both the US and UK (Does a Government share mean that HBOS / Lloyds TSB have been nationalised?). The Icelandic banks were playing the same game…but without a safety net. If overseas assets are released in a controlled manner, then the outstanding creditors should be paid as long as the aim is to maximise the returns for the benefit of all creditors. The Icelandic banks appear to be in the de facto equivalent of the US chapter 11, although, with the number of lawyers floatig around from the creditors, I suspect that they will have some influence over the equity structures of the new banks assets (as will the Icelandic pension funds who have take a real bath).
Allegedly using IMF influence to achieve a UK domestic political need is not wrong per se (everyone does it) but I would hazard a guess that it is not the smart move. Geo politically Iceland is the gateway to the North Atlantic (welcome New Russia) and (Lord knows why when you see the quality of political management) interconnected with the Nordic countries in such a manner that you might not want to push them into a choice between Iceland and the UK. UK hardball does not look good and simply enhances The local Icelandic political standing by taking the conversation (In Iceland) away from how did this happen and shoud it have happened, to yah boo sucks territory.
For the sake of £3bn (?), the UK is willing to flush away the relationship with a NATO ally to ensure that their political commitment to UK voters is paid for by some one else. By allowing the IMF funding to go ahead and by allowing an appropriate Chapter 11 discussion and liquidation of assets, then a coherent review of what has been done, can happen in Iceland.
To Scottish IceSaver:
In previous decisions by the FME, specify the new banks will be required to issue a bond to the old banks for the final estimation of any difference between the transferred assets and the liabilities.
http://www.fme.is/?PageID=867
http://www.fme.is/lisalib/getfile.aspx?itemid=5731
http://www.fme.is/lisalib/getfile.aspx?itemid=5746
To Scottish IceSaver:
The FME (the Icelandic FSA) put out a news release today on this issue.
http://www.fme.is/?PageID=14&NewsID=359
Unfortunately its still only in Icelandic (it often takes them few days to post engish translations).
In short it states:
– All standard laws and regulations on banking in Iceland apply to the new banks.
– The initial temporal balance sheet of the new banks were setup by international accounting firms.
– Due to the accelerated fashion this had to be done in the beginning, the value of the assets and the liabilities transferred from the old banks, is being reestimated based on more accurate information.
– Certified international estimators have been appointed to estimate the true value of the assets and liabilities. After their work is done the final balance sheet of the new banks will be published.
– The temporary opening balance sheets of the new banks will be published in few days.
“IMF loan has been refused, Holland, Britain and Germany have -apparently- blocked it.”
Not refused yet. “Flounders”. Incidentally, it’s the Netherlands that’s breaking ranks here and (probably) telling the truth. The UK and Germany haven’t said that this is the case.
BTW, for those like me who’ve used up their 20 free ones at the FT, use Google News to find it.
To Scottish Icesaver:
>>>>Thanks for all the interesting and relevant points posted yesterday and today. It certainly adds a lot to my understanding of the situation and as someone who is in the lucky position of having deposits returned by my government I can be a bit more objective about the whole affair.
I am glad to hear that you were able to get your money back.
>>>>A couple of key legal decisions in any action will be around whether the Icelandic governments emergency legislation to
create ‘New’ Landsbanki really was the creation of a new entity (as opposed to a manouevre to grab assets) and whether the use of that emergency legislation did in fact mean that the government representatives were in fact acting as directors and therefore had ‘de facto’ nationalised Landsbanki.
Yes, this remains to be determined by the courts.
To Jim:
>>>>Thanks for your recommendation to check the governmental website – obviously there is a lot of confusion about what is going on (so much so that a whole host of newspapers all over Europe got it all wrong whilst all they’d have had to do is look at the Icelandic government’s website!).
>>>>Can you send me a direct link to the Icelandic government’s web-posting from October 6 and 7 which states that Landsbanki was not nationalised?
Here are two pointers that cover the decisions of FME in regards to the old Landsbanki hf.
http://www.fme.is/?PageID=580&NewsID=342
http://www.fme.is/lisalib/getfile.aspx?itemid=5747
Here is a list of FME’s other decisions:
http://www.fme.is/?PageID=867
and the original emergency laws 125/2008:
http://eng.forsaetisraduneyti.is/news-and-articles/nr/3037
>>> DM. That’s right, ignore the rest of Peter’s post.
I read it very carefully. Maybe you should read it too. The dispute could be taken to the court. This is the civilized way. UK REFUSED. Iceland is “small and insolvent”. UK is big and powerful. Why should go to the court when it can bully. I am sick.
Finally, Peter!!!
With whom they think they are joking with???
Kam wrote
“Difference being the UK managed to do it without any depositors losing any money. Imagine that! A government that has the audacity to live up to agreements (actually it has already exceeded anything required by the agreements).”
It is necessary for the UK government to protect depositors. It would collapse if it didn’t.
But I think you will find that you are losing. Every UK taxpayer has lost.
The burden of paying the depositors has been shifted from those who never lose to those who are already well burdened, the taxpayer, the mortgage holder etc.
As Bank after Bank in Britain tap into the State coffers the GBP will lose value and the UK recession sinks in deeper. The UK government is either printing money or borrowing money, Whichever it is, will cause inflation. The value of Britain gets diluted by buying up bad debts with printed money.
Because a Government can borrow money or print money to cover the scandals of macroeconomic Banking does not make it especially honourable. It is imposing the burden to all the taxpayers. And there are more negative effects yet to surface, in fact no one really knows how many trillions will be wiped out in the derivitives area.
“I thought we had a crap government in the UK. Then i look at Iceland and i’m absolutely over the moon that i’m not governed by Haarde and his idiots”
While Harde is inept and indecisive (no argument), that does not disguise that
you actually do have a highly questionable suspect government which has driven an agenda of deregulation to the maximum credit limit (since Brown sold off most of the gold reserves at bottom prices) and now the UK is facing the worst recession in Western Europe after Iceland and Ireland?
Check out the Bremner Bird and Fortune 4 part satire on Labour’s “astonishing stupidity”
for a good laugh, before the next GB bank comes calling for more capital.
As Oysein a Norwegian poster wrote earlier
“The Norwegians (people and politicans) are concerned about the Iceland people these days. We don´t blame anybody, becuase we are all part of these crisis”
Bjarni,
Thanks for your recommendation to check the governmental website – obviously there is a lot of confusion about what is going on (so much so that a whole host of newspapers all over Europe got it all wrong whilst all they’d have had to do is look at the Icelandic government’s website!).
Can you send me a direct link to the Icelandic government’s web-posting from October 6 and 7 which states that Landsbanki was not nationalised?
IMF loan has been refused, Holland, Britain and Germany have -apparently- blocked it.
http://www.ft.com/cms/s/0/ed069984-b022-11dd-a795-0000779fd18c,dwp_uuid=70662e7c-3027-11da-ba9f-00000e2511c8.html
“Those who think that the Icelandic goverment will accept paying *4 times higher compensation* for a failure of *private* bank than Germany had to pay in reparations after World War I are frankly mad.”
Lets remember another historical comparison. The UK, after World War Two, had spent 3.5 times its GDP on war costs over the war period. Its borrowings to the USA continued to be repaid for FIFTY YEARS.
It handed over the islands now know as the US Virgin Islands and six other islands world wide to the USA as repayment. It gave up the British Pound hegemony to the US dollar as a condition of the US loans.
India was given Independence (as agreed as repayment for help with the war effort), the rest of the Empire dissolved due to Britain’s poverty.
Food was rationed for 10 years after the war because of the financial strain.
Britain paid back its debts and capitulated to the US’s demands. This was all because of a War against Hitler, which was for a large part fighting on behalf of the USA.
But Britain paid up.
Iceland, however, apparently, thinks its unfair to be asked to payback debts incurred by splurging on a better standard of living.
As I understand the emergency laws, passed last month in Iceland – and please correct me if I am wrong – customers of the banks can withdraw money from their savings accounts, as they are still operating. But in order to avoid a run on Icesave accounts, as there is now a severe foreign exchange crisis in Iceland, the withdrawal can only be made in ISK.
Of course if every Icesave and Edge depositor would go to Iceland and claim their deposits, the central bank would have to print more money, which would devalue the ISK severely and the depositors would have to get their banks/central banks to buy the Kronas off their hands, as there are restriction on currency exchange in Iceland.
To Jim:
You referenced in your post several different European newspaper/magazine articles that stated that the Landsbanki had been nationalized by the Icelandic government.
Just because something is published in the news by multiple outlets, DOES NOT necessarily make it true!
The Icelandic government specifically decided NOT to nationalize the banks when they passed the emergency laws on October 7th. Up until the weekend of October 4-5th of October, they had been trying to find a way to keep the old banks going, but finally determined they simply did not have enough financial resources to do so. Instead the old banks were put into administration and will later be liquidated.
Rather than rely on the media, that do not always get their facts correct, I would read through the various press releases from http://www.government.is/ and the various ministries linked from there, if you want to find out what the Icelandic government is doing.
To bc123a:
>>>>money does not come for nothing, and british government has all the right to reimburse their budget from the culprit – the iceland government, not from the pockets of british taxpayers.
Thats absolutely correct also for the Icelandic government. It simply doesn’t have the foreign currencies available to pay the amounts the UK/Netherlands governments are demanding, irrespective of who is right or wrong on the legal aspects. Thats why in the end the solution to this will have to be negotiated or barring that, litigated.
>>>>Note – this is important fact icelandic government really wants to hide from you – banks are not bankrupt. They are just opened for icelanders only, so icelanders can get the money, and foreigners cannot.
This fact is not hidden. You just have to read the relevant news releases, laws, and regulations that are published on the various Icelandic government web sites (many of which I have referred already in previous posts).
>>>>And there is not a court in the world, which would side with iceland on this – this is plundering of foreign assets, it is criminal, and your country will have to pay huge reparations to rectify this, especially if it becomes clear that icelanders profited from this scheme (e.g. icelanders getting more money from banks than foreigners).
It remains to be seen what the courts will rule on the many cases that will arise from this. From reading the relevant laws that I have been able to find so far, I am not so worried, but we will see what happens.
It was NOT be illegal from the Icelandic banks to profit from the deposits placed with them, thats what all banks do, irrespective of which country they are from. When banks loan out the money they have received at a higher interested rate than what they pay depositors and other creditors, they are simply doing their normal business. If it turns out that any of the banks actually broke any laws, that will then be dealt with by the relevant authorities in due time.
TO bc123a:
>>>>simple, there is easy way out of this. Iceland government should simple declare banks bankrupt. But they don’t want to do this, since they want icelanders to be paid out first, which is impossible if banks are under protection of a bankruptcy. That’s why foreign governments do not want to give any money, since they are sick of watching, how iceland is behaving like nothing happened.
It is not the responsibility of the Icelandic government to declare the old banks bankrupt. It is up to the creditors, whose bonds are defaulting, to decide when they want to demand the bankruptcy. At the moment its not in their best interest to do so, as they would then get nothing. So far none of the creditors have demanded any of the banks to be declared bankrupt.
To bc123a:
>>>>It is not that simple, since iceland decided to prioritize the creditors (savers) in the way they should not. This is, IMHO the breach of the international trade laws and could land the iceland in court for years and make the country liable for losses of foreign savers.
I would be interested in reading more about those International Trade Laws you are referring to. Can you provide URL reference with exact quotes of the relevant sections? In particular, do those trade laws provide any force majeure, or other emergency provisions, to protect the joining countries from complete collapse?
>>>>Mind you, you cannot use bank’s assets to cover some savers 100%, and give others just a minimum. And again, it seems to me, that, by not bankrupting the banks the iceland government is doing exactly this.
The old Icelandic banks WILL all become bankrupt in the end and all their assets liquidated. So far none of the bondholders or other creditors have yet forced this to happen.
Note that the priorities of the creditors and the depositors are not necessarily the same:
The depositors and their respective governments will want all assets liquidated as soon as possible so they can get paid quickly.
The creditors are probably going to want to wait as long as possible, so the assets (loans) will be paid up in full and not sold at firesale prices. They will have lower priority than the depositors, so they will probably prefer to maximize the price of the assets. There are now lot of discussions going on between the administrators and the creditors on how best to achieve this.
>>>>Is it possible to withdraw any amount of ISK from the landsbanki’s account as we speak? (i know EUR withdrawals are limited). If it is, then there is wholesale plundering of assets of banks as we speak, and take my word that foreign governments will try to squeeze every penny from iceland state for allowing this.
Yes, if you have an account in one of the new local banks, you can withdraw ISK from that account. I have heard there is some limit, but I do not have any detailed information about that. If the Icelandic government finds out there is a run on any of the new
banks, they have the authority to immediately step in and stop that from happening.
The Icelandic government did request that the population would not withdraw large amounts of money, and so far there has been no news of major withdrawals from any of the new banks. In the beginning there was a news story about some older people carrying out all their money in plastic bags :-).
>>>>More importantly, one thing is that there will be years of litigation and huge reparations demanded from the government for this, the other thing is, that in the short term, the foreign governments will deny any aid until iceland government come to their senses, declares banks bankrupt and protects the remaining bank assets from home AND foreign creditors.
Yes, the litigation around every aspect of this will probably take years, even decades. That is why its so important to read all the relevant laws in detail, before trying to decide who is right and who is wrong.
It remains to be seen what will happen with the IMF loan, but few friendly governments have already said they will make loans to the Icelandic government irrespective of what happens with IMF. The Icelandic government has already stated they will NOT accept any loans that come with any unacceptable conditions that are not based in law.
Thanks again Bjarni. Of course, if the government fund the 100% guarantee themselves (and not using the Fund’s/banks’ funds) and if the fund pays out the EEA guarantee, then there’s not a problem.
The interesting point arises if, as Su suggests, the government do have to back the fund. If that’s the case, then the government will have to do that for all depositors (foreign and Icelandic) to the tune of 20k euros *before* they do the 100% of local deposits.
That might well have always been their plan, but they could have been more clear. Of course, there’s been a lack of clarity over more basic issues :) .
Bjarni/Others
Thanks for all the interesting and relevant points posted yesterday and today. It certainly adds a lot to my understanding of the situation and as someone who is in the lucky position of having deposits returned by my government I can be a bit more objective about the whole affair.
A couple of key legal decisions in any action will be around whether the Icelandic governments emergency legislation to create ‘New’ Landsbanki really was the creation of a new entity (as opposed to a manouevre to grab assets) and whether the use of that emergency legislation did in fact mean that the government representatives were in fact acting as directors and therefore had ‘de facto’ nationalised Landsbanki.
Also my understanding was that there was to be a bond issued between so called ‘new’ Landsbanki and the rump company within 30 days of the emergency legislation to the full value of all assets transferred to the alleged new company. Has this happened yet? I can’t see any references to this.
I must admit that this whole affair has shown that Icelandic politicians are much better at politics and gestures than actually running a country. Hopefully they will get the same medicine as so many of their countrymen are feeling once the population get to vote next. While there is much talked about the issue I do feel the UK government was absolutely correct to use the laws available to them to freeze Landsbanki’s UK assets. I can’t really understand people who say this was Brown trying to create his ‘Falklands moment’ as the UK media and public have pretty much ignored Iceland since mid October (less than 0.5% of the UK population had Icesave accounts). It does seem to me that Haarde has rather tried to create his own ‘Falklands’ or ‘Cod War’ moment by selective quotes and quite clever emotional appeal to the people he has so badly let down.
Second last comment is that if this truly was mainly a liquidity issue at Landsbanki then Bjarni’s words quoted below are very wise… even of after the event
‘If emergency loans in foreign currency would have been made available, possibly this whole disaster could have been averted. If this had happened, the cost for EVERYONE affected would have been much, much lower’
Lastly lets not forget the poor savers with Landsbanki Guernesy and Kaupthing IOM… hopefully they’ll have their money back soon.
To Bromley86:
>>Of course no compensation scheme can have enough to compensate for the collapse of a country’s entire banking sector, or even a substantial part of it.
>>The current question is whether or not a member state’s government is required to support the guarantee in law. Obviously, whether it is or not, any UK government moves with regard to their’s were made to maintain confidence in the remaining banks (a problem Iceland doesn’t really have).
You are absolutely correct, the core question will be
whether a member state’s government is required to support the guarantee in law.
And yes, since the Icelandic government has taken over all the old banks and put them into administration, it does not have “the problem” anymore of trying to maintain confidence in them. Its already lost!
It would be interesting to know, what the UK government would do if HSBC, Barcleys, RBS, and Lloyds TSB would all go under in the course of one week and the British Pound would go become worthless at the same time. Faced with only two choices, would the UK government try to keep the local banks and the local economy running during the crisis or decide to pay all the depositors first?
To Bromley86:
>> I know it’s dangerous to cut and paste small parts of laws, but does this line make the Icelandic 100% domestic-only guarantee unlawful?
>> “Whereas in the event of the closure of an insolvent credit institution the depositors at any branches situated in a Member State other than that in which the credit institution has its head office must be protected by the same guarantee scheme as the institution’s other depositors”
You are probably mixing Icelandic Deposit Guarantee Scheme Fund with the emergency laws passed by the Icelandic Government on October 7th. It was the emergency laws, that gave the 100% domestic-only 100% guarantee. These laws had nothing to do with the Icelandic Deposit Guarantee Scheme Fund, which is covered by different Icelandic law 1999/98.
All the depositors, regardless of where they reside, will be treated the same, when the Icelandic Deposit Guarantee Scheme Fund will start paying out to the depositors. The FME (the Icelandic FSA) put out on October 27th put out news release, stating that the IceSave depositors were not paid on October 6th, which then triggers the article 9. in the previously mentioned 98/1999 Icelandic Deposit Guarantee Scheme law:
http://www.fme.is/?PageID=581&NewsID=352
Here again is the reference to the English translation of the Icelandic 1999/98 law:
http://eng.idnadarraduneyti.is/laws-and-regulations/nr/1165
Few interesting things to note from the Icelandic law are:
1. From Article 2: “Guarantees under this Act are entrusted to a special institute named the Depositors’ and Investors’ Guarantee Fund, hereinafter referred to as the “Fund”. ***The Fund is a private foundation***, operating in two independent departments, the Deposit Department and the Securities Department, with separate finances and accounting, cf. however the provisions of Article 12.”
2. From Article 3: “Commercial banks, savings banks, companies providing investment services, and other parties engaging in securities trading pursuant to law and established in Iceland, shall be members of the Fund. ***The same shall apply to any branches of such parties within the European Economic Area.*** ”
3. From article 10: “payments from each Department shall be divided among the claimants as follows: each claim up to ISK 1.7 million shall be paid in full, and any amount in excess of that shall be paid in equal proportions depending on the extent of each Department’s assets. This amount shall be linked to the EUR exchange rate of 5 January 1999. ***No further claims can be made against the Fund at a later stage even if losses suffered by the claimants have not been compensated in full.***”.
4. From article 10: “Should the total assets of the Fund prove insufficient, the Board of Directors may, if it sees compelling reasons to do so, ***take out a loan*** in order to compensate losses suffered by claimants.”
5. From article 18: “The Minister [of Commerce] shall in a Government Regulation impose further provisions regarding the Fund’s operations, among other things about the ***arrangements of payments from the Fund***, guarantees of deposits, securities or cash in the event of joint accounts or when a customer of a Member Company does not have absolute rights to deposits, securities and cash, and also regarding investment of the Fund’s assets.”
I marked above with *** the parts of the articles that I thought were particularly interesting and applicable.
There is no mention in the Icelandic 1999/98 law, when the fund will be required to start making the payments. The 19/94/EC EU Directive contains the following article on the subject:
“Article 10
1. Deposit-guarantee schemes shall be in a position to pay duly verified claims by depositors in respect of unavailable deposits within three months of the date on which the competent authorities make the determination described in Article 1 (3) (i) or the judicial authority makes the ruling described in Article 1 (3) (ii).
2. In wholly exceptional circumstances and in special cases a guarantee scheme may apply to the competent authorities for an extension of the time limit. No such extension shall exceed three months. The competent authorities may, at the request of the guarantee scheme, grant no more than two further extensions, neither of which shall exceed three months.”
Basically, the fund has 3 months initial period and then can potentially have two more 3-month extensions, which gives it total of nine months to pay the depositors. So sometime in the first half of 2009, by July 27th the latest, we will know how this all ends.
So far, the Icelandic Deposit Guarantee Scheme Fund has fully complied with all the applicable laws, both Icelandic and European.
DM. That’s right, ignore the rest of Peter’s post.
Peter “So what? Sue and get the money back as per normal.”
That is what is happening. That is besides the point.
You stated incredulity that Icelanders did not know about the state guarantee.
Do you want to persist with that nonsense statement and accept that most people here did not have an awareness of the fine print of its private foreign banking operations.
>>> other countries will punish you because you are small and insolvent.<<<
Come again and talk about that Iceland is not being bullied. “because it is small and insolvent”. Disgusting.
“In an effort to resolve the issue, the Icelandic government has offered to bring the dispute for the European court of justice. But for some strange reason the UK government does not want the courts to see the case, but rather uses its muscle in international forums to force Iceland to agree to their own home-made understanding of the law.”
It is of course easy to push around the only sovereign nation in Europe which doesn’t have an army. The actual Law is a minor annoyance when brute force can accomplish something quicker”
Here we go again, Iceland as a VICTIM.
Iceland owes the world $60Billion and its unfair, unjust and blackmail to expect it to pay it back. Yeah, right.
Lets be clear here, its not just the UK that is demanding that Iceland fulfils its obligations – its all countries INCLUDING its Nordic ally. Sweden.
Iceland however has decided that it will make its own laws about its liabilities and decide what court should decide what. However, there is a saying “Beggars can’t be Choosers”, which applies to the IMF loan and Iceland is very much a Beggar. The international financial community can dictate terms to Iceland and Iceland can accept it or not.
Iceland tried to pay ball in the big world of finance and yes, other countries will punish you because you are small and insolvent. That what happens in the real world when you screw up and loose other people’s money.
I really don’t get this army thing. Ignoring black jack’s theory that we’re going to launch Operation Liberate Iceland, what would happen is Iceland had a large navy and army that isn’t happening now?
I could understand if there was a blockade of Reykjavik or if trawlers were being sunk, but that’s not happening (nor will it happen).
Sounds like another distraction, as with the terrorist thing, revenge for the cod wars, Brown’s Falkland’s moment, the destruction of the arc of prosperity, etc.
@Peter
“Are you trying to say that the Icelandic government and people were unaware they they had half a millions depositors money in the EU and that the Icelandic government was behind the guarantee to those depositors?”
Many knew about the deposits, I doubt many people were aware of any possible obligations. In all probability the assumption was that the IceSave accounts were owned by british subsidiaries (like in the case of Kaupthin Edge).
Either the Icelandic government is liable or it is not. Don’t you agree?
To quote another article:
“In an effort to resolve the issue, the Icelandic government has offered to bring the dispute for the European court of justice. But for some strange reason the UK government does not want the courts to see the case, but rather uses its muscle in international forums to force Iceland to agree to their own home-made understanding of the law.”
It is of course easy to push around the only sovereign nation in Europe which doesn’t have an army. The actual Law is a minor annoyance when brute force can accomplish something quicker.
“Probably not many UK taxpayers were aware that Barclays Bank dressed up £100’s of millions of worthless toxic assets and sold them at triple A levels to French investors.”
So what? Sue and get the money back as per normal.
“I assumed that if the banking regulator in the UK gave the Iceland banks a positive credit rating”
Credit rating companies do that, not banking regulators
” it was satisfied about their operations and the Icesave & Kaupthing fell fully under UK audit, scrutiny and guarantees”
Maybe so but the complete banks fell under Icelandic regulators and only they would have known the true status of the banks. The Guarantee to Icesave fell to Iceland of course, plus the Kaputhing Parental Guarantee to the IoM savers.
“Call in those loans made to UK businesses,”
Actually, whats happening is the Icelandic banks are failing to make payments on the loans and losing the assets provided as collateral. The losers are Iceland more than the UK so far.
“The UK gov should deal with the urgent needs of the savers. They have their responsibility in regulating the Banks operations.”
Has been stated many many times, the Icelandic Government has made a direct guarantee to the UK, NL, Germany and Luxembourg depositors. It bi-passes the UK guarantee. And Kaputhing owes £850++million to the IoM/Guernsey) depositors as part of its parental guarantee.
Kaputhing has been nationalised by the Icelandic government, even though they deny it, making its liabilities the countries liabilities.
@black jack 1
Because as mentioned by previous posters on this site, the UK is legally bound by EU law to allow the banks to operate provided they have all the “supposed” safegaurds and guarantees. What the UK and other countries did not anticipate was that those doing the guaranteeing, ie. the Icelandic authoroties were going to do a runner.
“Tell me one thing what defines a terrorist. Why did brown say that Iceland is a terrorist country and stop all assets in uk. I think miss use off power there. Maybe 1973 codwar britain could not win so they will try to finish off the country instead. Thats what you want.”
Whatever it is you’re smoking. Stop it.
The sooner the Icelanders get over their little hissy fit with the Terrorist thing the quicker we can all move on. Nobody called them terrorists. The law used to seize assets was applicable not applicable *only* to matters of terrorism. Icelanders have shown just how childish they really are throwing their little tantrum whilst ignoring the fact that their government have completely flaundered when asked to play with the big boys.
“Are you trying to say that the Icelandic government and people were unaware they they had half a millions depositors money in the EU and that the Icelandic government was behind the guarantee to those depositors?”
I certainly wasn’t, not to mention the insane macroeconomic banking standards. Probably not many UK taxpayers were aware that Barclays Bank dressed up £100’s of millions of worthless toxic assets and sold them at triple A levels to French investors.
I assumed that if the banking regulator in the UK gave the Iceland banks a positive credit rating, it was satisfied about their operations and the Icesave & Kaupthing fell fully under UK audit, scrutiny and guarantees.
Sounds like the UK regulator mistakingly added a few zeroes on the calculator to the value of Icelands GDP.
I’d also assume that the Banks operations now be totally investigated, follow the trail of money to determine where it went and determine what has to be returned. Also liquidise any assets or take them as guarantee for refunding the savers.
Call in those loans made to UK businesses, doesn’t matter to Iceland if that means thousands of of people lose their jobs, if the jobs matter to the UK Gov then accept those assets as payment. After the value of the assets have been added up if there is a shortfall, the Iceland state should pay what is generally accepted to be it’s liability in the matter.
The UK gov should deal with the urgent needs of the savers. They have their responsibility in regulating the Banks operations.
Sounds like both Governments need to work together. Iceland is in the shíts right now.
Could it be that the UK gov wants the £2 billion+ from the the Iceland state as well as the GB assets of the Banks?
Why did Brown not do anything more than 6 months ago or more when he found out about Icelandic banks then. He like you say bc123a saw a way off making money from this to bail out his offsets.
“And then what do you think would have happened if it had surfaced that Barclays had 50.000.000 deposit accounts in Asia?
Would you blame:
A. Barclays.
B. The FSCS.
C. The government
D. The British people (thieves)?”
Surfaced?
Are you trying to say that the Icelandic government and people were unaware they they had half a millions depositors money in the EU and that the Icelandic government was behind the guarantee to those depositors?
Well, Iceland letup these banks in 2006 (and March 2008 in NL) SPECIFICALLY to shore up Iceland’s weak banks. The permission to operate in the EU would have depended on the correct guarantees being given.
#black jack 1
Try reading the 98 posts before yours – you might find the answer to your belated questions.
What makes you think i am Icelandic? I am british. I just dont like bullying going on. I have friends here and in Iceland so i know whats happening.
Tell me one thing what defines a terrorist. Why did brown say that Iceland is a terrorist country and stop all assets in uk. I think miss use off power there. Maybe 1973 codwar britain could not win so they will try to finish off the country instead. Thats what you want.
I did not vote brown in so i have to acept his ways. Do you not think that some off the Icelanders feal the same way.
Dont forget that Brown has pledged to pay all depositers. Who do you think will be paying for it in the long run. The working people.
Next thing could happen is uk going into war and taking over Iceland. They have done it before with other countries.
But do you think that the british people have a say on what Brown does. They did not with Blair in power.
What i am trying to say is governments do what they want but not the people agree with. Try to have some nice thoughts to other countries people.
@black jack 1
money does not come for nothing, and british government has all the right to reimburse their budget from the culprit – the iceland government, not from the pockets of british taxpayers.
Note – this is important fact icelandic government really wants to hide from you – banks are not bankrupt. They are just opened for icelanders only, so icelanders can get the money, and foreigners cannot.
And there is not a court in the world, which would side with iceland on this – this is plundering of foreign assets, it is criminal, and your country will have to pay huge reparations to rectify this, especially if it becomes clear that icelanders profited from this scheme (e.g. icelanders getting more money from banks than foreigners).
And, above all, your suggestion is ridiculous … well, british government has promised to pay, and let’s forget that icelandic banks owe the money?
You got to be kidding. With this attitude, not only that IMF will not give you any loan, they will fence you off from the foreign trade forever.
@black jack 1
Which bit don’t you get. Iceland owes *others* money. So far Iceland can’t even come up with the goods for the first 20k euro as per the directive. If any place should suffer its Iceland for cocking this whole thing up.
Clear now?
#black jack 1
Your true identity must be Geir H. Haarde with logic like that!
@MrK
But they didn’t go under. So there is absolutely no equivalency here. Iceland failed, the UK didn’t. I can’t verify the o.5% that you come up with about lost deposits. But even if that was the case, that’s a pretty far cry from the 100% lost (so far) by depositors with Icelandic banks.
Not clear on this one. British government has promised to pay their peoples money to their country so why can not Iceland do the same. Why should Icelandic people suffer any more than they have already. They will be the people who will have to pay anyway for years.
Are you clear on that?
@black jack1,
simple, there is easy way out of this. Iceland government should simple declare banks bankrupt. But they don’t want to do this, since they want icelanders to be paid out first, which is impossible if banks are under protection of a bankruptcy. That’s why foreign governments do not want to give any money, since they are sick of watching, how iceland is behaving like nothing happened.
Clear now?
Why is it that the british and dutch want to block the loan and not officially say. They want icelands government to pay the depositers, It sounds to me that they want to make it difficult for Iceland to get a loan then they can lend iceland a loan on there terms with big interest. Trying to cash in on a small country Bully boys. Maybe iceland should get the loan from russia and let them use the old us millitary base. Maybe it would stop all the brit and dutch bullying.
@kam
“Difference being the UK managed to do it without any depositors losing any money.”
0.5% of savings were lost and the UK compensation scheme had to borrow money :-)
What do you think would have happened if all the banks had gone under?
And then what do you think would have happened if it had surfaced that Barclays had 50.000.000 deposit accounts in Asia?
Would you blame:
A. Barclays.
B. The FSCS.
C. The government
D. The British people (thieves)?
@bjarni,
So if Iceland fulfills the ensuring part “under the conditions prescribed in this Directive” then its off the hook legally, and is not required to pay anything. If Iceland does not fulfill the conditions, then its on the hook legally. Iceland has always said it is willing to pay what it is legally required to, so this sounds fine to me.
It is not that simple, since iceland decided to prioritize the creditors (savers) in the way they should not. This is, IMHO the breach of the international trade laws and could land the iceland in court for years and make the country liable for losses of foreign savers.
Mind you, you cannot use bank’s assets to cover some savers 100%, and give others just a minimum. And again, it seems to me, that, by not bankrupting the banks the iceland government is doing exactly this.
Is it possible to withdraw any amount of ISK from the landsbanki’s account as we speak? (i know EUR withdrawals are limited). If it is, then there is wholesale plundering of assets of banks as we speak, and take my word that foreign governments will try to squeeze every penny from iceland state for allowing this.
More importantly, one thing is that there will be years of litigation and huge reparations demanded from the government for this, the other thing is, that in the short term, the foreign governments will deny any aid until iceland government come to their senses, declares banks bankrupt and protects the remaining bank assets from home AND foreign creditors.
Of course no compensation scheme can have enough to compensate for the collapse of a country’s entire banking sector, or even a substantial part of it.
The current question is whether or not a member state’s government is required to support the guarantee in law. Obviously, whether it is or not, any UK government moves with regard to their’s were made to maintain confidence in the remaining banks (a problem Iceland doesn’t really have).
@MrK
“Do you think it is a coincidence that the UK government had to lend its compensation scheme cash due to insufficient funds?”
Difference being the UK managed to do it without any depositors losing any money. Imagine that! A government that has the audacity to live up to agreements (actually it has already exceeded anything required by the agreements).
I thought we had a crap government in the UK. Then i look at Iceland and i’m absolutely over the moon that i’m not governed by Haarde and his idiots. As for some of the Icelanders (and non-icelanders, looking at you William Watson) that posted on this site originally ranting about how it was injustice to seize assets and how the banks were actually all doing fine yada yada yada… They have all be proven so so wrong. If the Icelanders could just get over their little hissy fit about their percieved slighting on how their assets got seized and if Haarde and Co. could bang together more than a couple of brain cells rather talking like they still call the shots then maybe Iceland would get a smidgen more sympathy from the rest of Europe.
So far i have see nothing but slippery, slanting shoulders from Icelandic politico and a population that is only just beggining to wake up from their self induced stupor.
The Icelandic deposit guarantee scheme has been implemented *exactly* like other European compensation schemes. If the Icelandic scheme is faulty then so are all the others.
The *problem* is that no scheme, not the UK’s, rot the German, nor the Dutch, can handle the total failure of its nation’s banking system. Do you think it is a coincidence that the UK government had to lend its compensation scheme cash due to insufficient funds?
Lets see how this pans out though. There might be some interesting twists and turns ahead.
I know it’s dangerous to cut and paste small parts of laws, but does this line make the Icelandic 100% domestic-only guarantee unlawful?
“Whereas in the event of the closure of an insolvent credit institution the depositors at any branches situated in a Member State other than that in which the credit institution has its head office must be protected by the same guarantee scheme as the institution’s other depositors”
Isnt it Ironic, these forums are a fine example of how man has got to the very status it finds itself in !
GREED with everyone out for themselves, criticising others, ridiculing anyone who cant seem to understand another persons culture or way of doing things.
No one seems to want to be constructive or to help one another.
Im happy that I live in this land of not many people and plenty of untouched nature.
So the result of all the discussions is that basically the legal question simply boils down to this part of the sentence:
“…ensuring the compensation or protection of depositors under the conditions prescribed in this Directive…”
So if Iceland fulfills the ensuring part “under the conditions prescribed in this Directive” then its off the hook legally, and is not required to pay anything. If Iceland does not fulfill the conditions, then its on the hook legally. Iceland has always said it is willing to pay what it is legally required to, so this sounds fine to me.
In the end this is all going to be either negotiated by the governments involved, or put through to some European court to decide. In either case, the actual
payment to the depositors, will always have to come from outside Iceland, since Iceland simply doesn’t have the money. Its just a question who pays finally it in the end.
Oooh!…. There I was – in awe of all the contributors – to this debate – when Su takes time out in the tea break to sort things………can’t see any disagreement from proponents of the WHEREAS clauses?….. MrK, Bjarni?
“Legal lesson over. Can I go back to work now?”
As Gray says, thanks! Great posts on the education system as well.
@Gray, Germany
“that foreign claimants to the bankrupt estate of the Icelandic banks would acquire shares in the new banks”. That’s encouraging.
LOL. Hardly. Roll up! roll up!. Turd pie. Come and geddit!
I’d much rather we just sold all the damn assets and be rid of any economic ties to Iceland. They’ve had nothing to offer other than misery for thousands of depositors, lies and a public showcase for political incompetence. The whole charade has been like watching a load of primary school kids trying to organise themselves. Random. Disorganised and utterly without cohesion or direction.
“Can I go back to work now?”
Yes, and thank you for pointing this out!
Job well done.
Bjarni, that’s not the same announcement, gthe details are different. The one I quote used to be here:
http://www.fme.is/?PageID=581&NewsID=331
Now, don’t you think that deleting this page looks a but suspicious? What may be the reason, a desire to save a few kb of disk space on the server?
“The Icelandic government did not take any assets out of the old banks to provide the new equity for the new banks. It used it own ISK money to do that.”
It took over the buildings, the equippment, and the stock of customers, and probably part of the credit business. Are those not assets by your definition?
“Please note that all of the above items are in Icelandic kronas, and no foreign money/currency was used for this emergency action by the Icelandic government.”
ATM’s and other Bank stuff have a value in other countries, too. And there may be foreign investors interested in the buildings, too. Your point that these assets “are in Icelandic kronas” is really ridiculous. Assets are assets, sellable in any currency you like.
“Since only Icelandic resources and Icelandic kronas where used for this action, and all the foreign deposits where in GBP/EUR, there is no way it could be called “theft”.”
Uh huh. So, if you borrow dollars from an american tourist, exchange them into kronas, and then refuse to pay them back, you think that’s legal? Interesting ethical values you have in Iceland. Must be part of the Viking heritage. However, in the rest of the world we call this theft or fraud.
“In the letter to the UK government, they said would support “raising” the funds for the Scheme, not the same thing. The Icelandic government has always said they were willing to be in contact and talk to anyone involved, and that everyone should be treated fairly and not discriminated against.”
Well, I already pointed this out before, when Icelanders still boasted that the letter allegedly shows that their governement promised to the UK to guarantee the deposits. Exactly, there is no guarantee in this statement. And this support for fundraising is just a joke. Pls show me a single action of the Icelandic government in support of the guarantee fund! All they do is look for credits for Iceland’s economy. Only now they seem to have at least installed a commission to look for ideas on how to compensate the depositors. Let’s hope this isn’t simply a kabuki theatre performing purely for public relation reasons.
“the fact still remains: Iceland will honour all its legal obligations”
This remains to be seen. So far, we haven’t seen anything except idle talk. So, that’s not a fact yet, but just an optimistic prophecy. And since you work very hard here to convince us that Iceland has no legal obligations at all, this statement isn’t especially reassuring. Btw, European nations have no legal obligations to support giving credits to Iceland, either.
Bromley86 writes:
“That’s the problem Peter. It seems that the passport guarantee is not legally binding on the Icelandic government.”
Well, it is legally binding on the government. The clause which says that a state cannot be held responsible is a conditional clause. Here it is in full:
“Whereas this Directive may not result in the Member State’s 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.”
It has the word “IF” halfway through it. The reason that conditional was written into the directive way back in 93 (if my memory serves) was to cover a state in the case in which a guarantee is refused by the national compensation scheme due to reasons such as fraud or malpractice.
However, in cases where the scheme has been badly designed by the state and the guarantee is in fact no guarantee at all then the requisite compensation does indeed fall onto the state. The wording makes this clear: “if they have ensured”. Well the Icelandic government did NOT ensure, so the government does indeed become liable.
Legal lesson over. Can I go back to work now?
Although, that said, there is now an Icelandic government guarantee of Dutch savers (see link). I know we all knew that, but with things as they are at the moment you need government confirmation before you can be sure.
Or was – if the Dutch are blocking the IMF loan they plainly don’t consider the guarantee to be effective.
http://www.tryggingarsjodur.is/News/7848/
That’s the problem Peter. It seems that the passport guarantee is not legally binding on the Icelandic government.
“By the way, LTCM was bailed out by multiple banks in both US and Europe, and no one demanded the US government to pay anyone anything.”
LTCM was not a bank.
There Icelandic Banks took deposits and the Icelandic Government explicitly guaranteed deposits up to 20K euro on one of them. It has refused to honour the guarantee unless the depositors were Icelandic.
To Gray, Germany:
>>Bjarni, as you know very well, since I posted this at our discussion at the FTalphaville site, the FME also had this information up, which has now been deleted:
The news release from FME is still there:
http://www.fme.is/?PageID=580&NewsID=342
>>“- Domestic deposits are fully guaranteed, as declared by the Government
>>- Landsbanki´s domestic branches, call centres, cash machines (ATMs) and internet operations will be open for business as usual
>>- The objective of the FME´s action is to guarantee a functioning domestic banking system”
Please note that all of the above items are in Icelandic kronas, and no foreign money/currency was used for this emergency action by the Icelandic government.
>>This somewhat supports your point about keeping the domestic banks functioning was the main, if not only priority of the Icelandic government. However, it also shows that the deposits of Icelanders were “fully guaranteed”, while nothing was done for the foreigners. I still can see this only as theft. In a “normal” bankruptcy in western countries, all creditors are treated equal, with no advantage for domestic ones.
No question, the purpose of the emergency action was to rescue the Icelandic banking system. When a disaster happens, whether its natural or financial (man-made), it is the absolute role of the government to rescue what can be rescued. It would have helped no one to let the Icelandic banking system collapse completely. Since only Icelandic resources and Icelandic kronas where used for this action, and all the foreign deposits where in GBP/EUR, there is no way it could be called “theft”.
When the bankruptcy finally goes through and all the assets are liquidated, all the creditors will be treated equally according to the law. The only exception will be that all the depositors will have priority over other creditors. No special preference will be given to domestic creditors.
As mentioned in my earlier message, according to the emergency law, the new Icelandic banks will have to pay back the difference between the assets they received and liabilities taken over, to the old banks, when they are finally liquidated.
>>And what you say about the transfer of assets and the transfer “payments” doesn’t make this any better. Those “Icelandic” assets were paid for with the moneys of the foreign savers. But the Icelandic government simply took this valuable equity out of the bankrupt banks, and intends to pay for them with ISK. But, as you admit, too, the Icelandic Krona is worthless. So this is absolutely not in the interest of the creditors, and in normal bankruptcy proceedings, there veto would prevent such a move.
The Icelandic banks had also Icelandic depositors, so its debatable whether you can say all the Icelandic assets of the old banks were paid only by foreign depositors.
Remember, as with most banks, the assets are mainly loans, and they were issued all over the world. The equity of all the old Icelandic banks was automatically wiped out causing enormous losses for its owners and stockholders.
The Icelandic government did not take any assets out of the old banks to provide the new equity for the new banks. It used it own ISK money to do that.
>>Icelandic krona is worthless outside Iceland.
In Iceland the krona is still the legal tender. You just can’t change it to any other currency.
>>All in all, the actions of the Haarde and his gang only put an phony inagge of legality to this theft. And while I can understand that saving the Icelandic economy has a higher priority for them than caring about the rights of foreign creditors, the fact that they haven’t even presented a plan for providing the guarantee fund with the necessary moneys, despite their written assurance that they would “support” it, shows that they don’t care about the foreign victims of the banks at all. And that’s scandalous. No surprise that other European governments don’t want to support this, and use their leverage to force Haarde to deal with the problem. And it seems to be working: Now, suddenly, faced with international pressure, Haarde announced: “We have to remain in contact with the foreign claimants and they have to be treated fairly and not be discriminated against”. And in the same news we read that the idea is debated “that foreign claimants to the bankrupt estate of the Icelandic banks would acquire shares in the new banks”. That’s encouraging. Sad that it took some strong arming to make the Icelandic government accept its responsibility, but better late than never.
It is not “phony inagge” to adhere to International laws and treaties. The Icelandic government did not promise to “support” the Deposit Scheme. In the letter to the UK government, they said would support “raising” the funds for the Scheme, not the same thing. The Icelandic government has always said they were willing to be in contact and talk to anyone involved, and that everyone should be treated fairly and not discriminated against. No strong arming needed here.
There are lot of ideas on how to resolve this being debated in Iceland, but the fact still remains: Iceland will honour all its legal obligations according to all applicable Icelandic, Europan, and International laws and treaties, but it will not be able to pay anything more than that, simply because it does not have any resources to do so, due to how small country it is.
@Andre
I suspect he means investments rather than savings. So anything related to the stockmarket (especially bank shares!), including pensions.
@bjarni,
LTCM comparison was thrown in just for a poetic value. Of course, the economy of iceland has not been so highly leveraged.
But again, if you think that one was big boys’ playing toy, and the other was entire country, then, even if things are in the same order of magnitude it shows that for a country, iceland was playing highly dangerous game. That was what I wanted to say with LTCM comparison.
“By the way, LTCM was bailed out by multiple banks in both US and Europe, and no one demanded the US government to pay anyone anything.”
Well, it looks like the bailers got their money back:
“Unsurprisingly, after the bailout by the other investors, the panic abated, and the positions formerly held by LTCM were eventually liquidated at a small profit to the bailers.”
Plus there was no deposit guarantee (indeed, no depositors, just investors). The bailout happened because otherwise the markets were going to crash.
@Koben
Could you please explain in what way people lost their savings, let’s say in New Kaupting?
This is interesting to know.
You can mail me : kaupthingnl@gmail.com
Thank’s in advance.
“Once the Glitnir situation become public September 29th, all trust and faith in the Icelandic banking system disappeared immediately and all of banks became vulnerable.”
And Kaupthing wouldn’t have survived long, even without Glitnir getting into trouble. Have you read this story about that corrupt pigsty?
“A declaration which freed a certain group of employees at the old Kaupthing Bank from personal liability for loans that they had in the bank allegedly came from former CEO of Kaupthing Hreidar Már Sigurdsson at the end of September.
The loans in question were granted to Kaupthing employees so that they could purchase shares in the bank. According to Kaupthing’s balance sheet, such loans amounted to more than ISK 50 billion (USD 388 million, EUR 304 million), Morgunbladid reports.”
http://www.icelandreview.com/icelandreview/daily_news/?cat_id=16567&ew_0_a_id=314872
To bc123a:
I agree, the size of the Icelandic banking sector compared to the Icelandic economy was the fundamental weakness that precipitated the crash. The numbers I have read are more like 8x-10x rather than 12x, but in the end it doesn’t make a whole lot of difference which factor is correct in the overall scheme of things.
Regarding Glitnir loan, the story behind it shows even more incompetence by the Icelandic government than you mentioned. Glitnir had negotiated a 600M Euro loan with German Bayern LB to pay another loan that was due on October 15th.
In September the Icelandic central bank went to the same bank for a 300M Euro loan to shore up its foreign reserves, which along with the Lehman Brothers fall, caused the German bank to withdraw the loan to Glitnir.
When Glitnir went to the Icelandic Central Bank for temporary help, the central bank instead informed them on September 28th that they were forcefully taking over 75% of Glitnir in turn for the 600M Euros, in effect nationalizing the bank.
This then started the world-wide run on all the Icelandic banks and the Icelandic krona. The nationalization of Glitnir was abandoned about a week later when the emergency laws were passed. And Bayern LB is now asking for help from the German government.
It didn’t matter that the Icelandic banks themselves were actually in relatively good shape finacially, with high profits, good capital ratios and no “toxic debt”. Once the Glitnir situation become public September 29th, all trust and faith in the Icelandic banking system disappeared immediately and all of banks became vulnerable.
Regarding LTCM (Long-Term Capital Management hedge fund), that is an interesting comparison. According to its wikipedia page, it had Equity of $4.7B with debt of $124.5B and off-balance derivative positions with a notional value of approx. $1.25 Trillion. Depending on how you account it, it had leverage of at least 25x. If you count the derivatives its leverage was somewhere around 100x-200x.
So although the Icelandic financial system was way too leveraged, I am not so sure we were less prudent than LTCM. And we are not alone, in fact, there are number of countries that are not much better than Iceland when it comes to leverage, for example Switzerland (leveraged about 7-8x).
By the way, LTCM was bailed out by multiple banks in both US and Europe, and no one demanded the US government to pay anyone anything.
“How would you feel if your children and grandchildren had to pay for the stupidity of a private company?”
It wasn’t simply the stupidity of a private company, it also was the stupidity of your elected government, whose stubborn belief in the blessings of deregulation allowed this bubble to build up, and who did nothing to intervene when the risks became obvious in 2006. So let’s also ask:
“How would you feel if your children and grandchildren had to pay for the stupidity of your national government?”
As a German, I guess I can answer that question: I feel fine, thank you.
There were about 5000 customers in Kaupthing in Norway. Deposits are paid out (up to about 230 000 Euro per customers (NKR 2 000 000). I thik that there were only 5 person that lost money (accumulated interest).
Because we had established a much better system to secure bank customers, we did nod need to use a bad translation on a youtube-movie to handle this case.
Glitnir is sold to a group of Norwegian banks and is still active http://www.glitnir.no
The Norwegians (people and politicans) are concerned about the Iceland people these days. We don´t blame anybody, becuase we are all part of these crisis.
I am in fact also more concerned about the future for the british people (and other europeans) than the icelanders, just because of their large populations and that they are in much more need for a well functioning economy. Iclanders are just 300 000 and can turn around much easier.
It is more important to have a focus on the real crisis, in stead of producing bad relations between people. If British people did not know that it is possible to lose money in a bank, then they should blame their press and politicans.
Each country should take care of their own people, but it is legal (unlegal not to) ask for help if needed.
To Peter (Germany):
The reason this dispute will possibly end up as a legal matter, is that otherwise Iceland would be forced by UK and the Netherlands accept loans for extraordinary amounts (approx. 5-10B Euros).
These loans covering the depositors would be on top of the $2 billion IMF loan and the other loans Iceland is requesting from its friends, just to be able to support foreign exchange again with the krona and restart the foreign trade.
I totally agree that all the three governments in question should work together to resolve the problem, but so far it does not seem to be going so well.
I am also fully aware of the irreparable damage the international reputation of Iceland has suffered from this, which will undoubtedly last for years.
The fact still remains, that there are only about 100,000 tax-paying households in Iceland. They would have to take the responsibility for paying up any loans that are taken. This is the main reason, Iceland has simply no choice, but to limit its payments to what the actual legal obligations are, no matter how much its pressured or bullied. Any other outcome would simply bankrupt the whole country.
You can rest assured, the Icelandic government, the central bank and the old banks are not blameless in this matter, and they is being soundly critised both in the Icelandic media and on the very active online blogsphere. The government itself will almost certainly fall within the next few months, and new election will be held.
I have actually been astonished also by the complete silence from the German government, considering that Germany is probably the country that stands to loose the most amount of money on the Icelandic bank crash. Not that we are complaining, we will need all the friends and assistance we can get at the moment.
Bjarni, as you know very well, since I posted this at our discussion at the FTalphaville site, the FME also had this information up, which has now been deleted:
“- Domestic deposits are fully guaranteed, as declared by the Government
– Landsbanki´s domestic branches, call centres, cash machines (ATMs) and internet operations will be open for business as usual
– The objective of the FME´s action is to guarantee a functioning domestic banking system”
This somewhat supports your point about keeping the domestic banks functioning was the main, if not only priority of the Icelandic government. However, it also shows that the deposits of Icelanders were “fully guaranteed”, while nothing was done for the foreigners. I still can see this only as theft. In a “normal” bankruptcy in western countries, all creditors are treated equal, with no advantage for domestic ones.
And what you say about the transfer of assets and the transfer “payments” doesn’t make this any better. Those “Icelandic” assets were paid for with the moneys of the foreign savers. But the Icelandic government simply took this valuable equity out of the bankrupt banks, and intends to pay for them with ISK. But, as you admit, too, the Icelandic Krona is worthless. So this is absolutely not in the interest of the creditors, and in normal bankruptcy proceedings, there veto would prevent such a move.
All in all, the actions of the Haarde and his gang only put an phony inagge of legality to this theft. And while I can understand that saving the Icelandic economy has a higher priority for them than caring about the rights of foreign creditors, the fact that they haven’t even presented a plan for providing the guarantee fund with the necessary moneys, despite their written assurance that they would “support” it, shows that they don’t care about the foreign victims of the banks at all. And that’s scandalous. No surprise that other European governments don’t want to support this, and use their leverage to force Haarde to deal with the problem. And it seems to be working: Now, suddenly, faced with international pressure, Haarde announced: “We have to remain in contact with the foreign claimants and they have to be treated fairly and not be discriminated against”. And in the same news we read that the idea is debated “that foreign claimants to the bankrupt estate of the Icelandic banks would acquire shares in the new banks”. That’s encouraging. Sad that it took some strong arming to make the Icelandic government accept its responsibility, but better late than never.
@Terry
“Icelanders do not seem to realise that intransigence in respect of this crisis – may well be the ‘tip of the iceberg’ in terms of the impact it will have on the future of their country in its dealings with others”
Trust me, we do. How would you feel if your children and grandchildren had to pay for the stupidity of a private company?
@bjarni
NONE of the Depositor Guarantee Scheme’s in any European country have enough money in them to pay all the depositors.
Of course, but none of them had the banking sector of 12x of the GDP. It again goes back to incompetence on the side of icelandic authorities, to not foresee chain reaction which happen when you run whole economy of a country on 12x leverage!
Imagine, whole iceland practically went bankrupt because one bank (glitnir) did not manage to extend meager 700m EUR loan for the night.
It shows how badly icelandic economy was managed, and how badly it was prepared for unforeseen problems. Any extraordinary event, and it would collapse. Finally, the extraordinary event was the financial crisis, but with such highly leveraged economy, no reserves and no lender of last resort (what they were thinking in the sedlabanki during all these years, when banks took routine overnight loans in the size of 1/4 of all forex reserves of the coutry?!).
It could be tsunami, earthquake, volcanic eruption, basically anything what would provoke even slight distrust in iceland economy, and whole scheme would collapse. So it was not the question of why, but when.
In retrospect, guys at LTCM seem prudent in comparison to iceland…
@mrk,
WaMu were two separate companies before. Bondholders lent the money to holding company, which owned the bank (and presumably invested lent money into the bank). That made this FDIC operation legal – they just seized the bank from the ownership of a holding company, as they are entitled to – it is no different than seizing bank from the ownership of multiple shareholders. In this case, it was just one owner – the holding company – which, after bank was taken away from them, was left without any means for continuing business and went into ch 11.
Imagine that I have for example shares of Citi and I borrow the money from my neighbour to buy them. Citi goes bust, FDIC seizes them, my shares are worthless, and I declare bankruptcy because I owe money to my neighbour. This is how it happened to Wamu’s holding company. Neighbor cannot protest against FDIC seizing of Citi, since he lent money to me, not to citi.
But, landsbanki was one company, and such split AFTER the company got into trouble is pure theft and unnaceptable act, since investors and creditors lend money in good faith that assets and liabilities are unseparable.
See the difference?
And, last but not least, savers of WaMu did not lost their deposits.
@kam
The Icelandic deposit fund is no different to other deposit protection funds. The difference is that the whole banking system collapsed at the same time.
If as you say that there is no way that the courts would find this remotely acceptable then they should be able to declare a swift verdict.
Unfortunately the UK government doesn’t want to see this dispute ruled upon.
Peter (Germany) precisely! Icelanders do not seem to realise that intransigence in respect of this crisis – may well be the ‘tip of the iceberg’ in terms of the impact it will have on the future of their country in its dealings with others . You express astonishment that Germany has not taken the slightest interest. I do not share your astonishment. If the UK and Dutch are trying to squeeze (Icelanders would say bully) Iceland into submission – then they will have been lobbying other EU members, and any other countries where they have influence. Again, perhaps realpolitik and not lawyers will resolve this issue.
@Bjarni
“The ONLY way that would happen, would be to store all the deposits in the fund.”
No, because it only pays a proportion of the deposit not all of it.
Your argument then is effectively because the Icelandic government rubber stamped some mickey mouse fund with little or no oversight, they and their financial authorities are not responsible for deposits lost. I’d be amazed if anybody else or the courts found that remotely acceptable.
I know so far the English, Dutch and Germans have all seized some assets, i don’t know about other countries. Maybe others from countries other than those three could chime in. Either way Iceland has pissed off a major section of Europe just when it needs friends the most.
To Terry:
>> Again from a previous posting – this was IceSaves response to UK IceSavers just before it froze accounts.
…
This would mean you potentially have a legal claim against the old Landsbanki and IceSave, if they gave you false information. However, it would NOT mean you would have a legal claim against the Icelandic government, unless the letter from the Icelandic FSA said something also that was false.
Do you have URL reference to the letter from the Icelandic FSA, so we can read it?
>>Icelandic lawyers may wish to conduct a legal dance on the head of a pin, however
>>Do we therefore forget old fashioned principles like honour and duty?
I am Icelandic, but not a lawyer. I would not call it “legal dance” to read the actual laws and treaties that govern the actual issue at hand. And I would not call it “honour and duty” by the UK government to pressure and bully the Icelandic people that are suffering, to pay for something they are not legally required to and had no part in causing.
Regarding the comment from Geir, the Icelandic PM: “It’s everyone for themselves”, this came during one of the first news conferences, after the Icelandic government had tried to request help from the American and various European governments and central banks, but was rebuffed.
If emergency loans in foreign currency would have been made available, possibly this whole disaster could have been averted. If this had happened, the cost for EVERYONE affected would have been much, much lower.
The Icelandic government has said that it will honor it’s obligations.
It’s obligations consist of the passport scheme, at most 20.877 euros per account. The problem seems to be that the British Government is demanding more than what Iceland is legally obligated to pay and the government has no authority to do this. The British government is trying to bully the Icelandic government into going beyond it’s legal obligation by using it’s influence in the IMF, causing huge economic problems such as companies and individuals not being able to get foreign currencies. Plus it was Britains fault that Kaupthing went bankrupt so don’t blame that on Iceland.
The reason the banks went bankrupt had very little to do with the banks themselves. They were well run and had good assets but a month ago the financial markets froze and, like for example Britain’s biggest banks, were reliant on refinancing from central banks. The Icelandic central bank could never have done this because unlike in the euro and dollar zones Iceland can’t print those currencies. There was a run on Icesave and credit lines and in those cases the central banks are supposed to help but there was no way Iceland could have done this.
Kaupthing has no passport scheme and therefore it is solely up to the local governments to compensate after the banks assets are liquidated.
Plus the compensation scheme hasn’t actually been activated as the banks assets have not been liquidated yet.
@bc123a
All WAMU bond holders were wiped out. JP took over the deposits and the nice fluffy assets.
http://www.dailymarkets.com/stocks/2008/09/27/washington-mutual-bond-holders-wiped-out/
To Kam:
>>But this part of the agreemnent is surely broken.
>> “and ensuring the compensation or protection of depositors under the conditions prescribed”
>>Since no such money existed or if it did, it wasn’t enough to meet the commitments in the first place as per the Directive.
NONE of the Depositor Guarantee Scheme’s in any European country have enough money in them to pay all the depositors. The ONLY way that would happen, would be to store all the deposits in the fund. Remember the previous WHEREAS clause said that the cost of the scheme could not be so high that it would jeopardize the stability of the banking system.
Also, I am not a lawyer, but I would read the “under the conditions prescribed” to mean that so long as you fulfill the conditions that are prescribed in the Directive, the rest of the WHEREAS clause applies.
There is no condition in the Directive that says by how much the scheme should be funded, probably on purpose. All the Icelandic banks paid the 1% of their guaranteed deposits into the fund, and therefore fulfilled their obligations. Most other European countries require their banks to pay even lower percentage than 1%.
During this crisis, many European governments have been deciding to both suppliment their Deposit Guarantee Scheme funds and increase the guaranteed amounts in order to rescue their own banks. This has been decided separately by each government. The situation in Iceland was that all the banks were MUCH bigger than the government, so in the end they simply didn’t have the option of rescuing the banks.
Bjarni, thanks for your interesting and enlightening remarks. In lights of these legal considerations I think, though, that no one can really complain about the actions the British government has taken to protect British savings.
More generally, I think it is no good for the Icelandic Prime Minister to start a lengthy quarrel with the Netherlands and Britain. Both countries are relatively powerful within the IMF system and both countries are very important EU-memberstates which might be of interest in case Iceland once wants to become part of the EU. Iceland needs help and assistance from the Dutch and the British. These three nations should try to work together rather than start a pointless legal dispute. Pointless because there can be no doubt of the disastrous international reputation of Iceland once it becomes clear that it does not want to do something about the Icelandic deposits in foreign countries.
I also think that the Icelandic government needs help in terms of expertise. I do not want to critise the Icelandic administration because I suppose it’s impossible for a small country like Iceland a crisis like this without flaws and thinks being forgotten, over-looked, misunderstood or mis-represented. For these reasons I think it should possibly ask Denmark or Norway for assistence to avoid yet further financial or PR-desasters.
I am still astonished that the German government does not seem to take the slightest interest in the whole matter.
And, interesting issue is: if those actions, which made legal the discrimination of creditors and savers (and other strange things, like government seizing bank without nationalizing or bankrupting it) were legalized by the icelandic parliament, does this make whole country liable for the mess and losses in the international trading courts?
After all, the ordinary icelanders voted those morons who legislated this into their offices.
@Terry
It is a legal dispute. How much of a responsibility does the Icelandic nation have for a private bank’s debts? Although situated in Iceland the majority of the banks income and lending took place in Europe.
The Icelandic government wants this dispute settled in court while the UK government doesn’t want that (for obvious reasons) and intends to bully instead.
@jim,
as far as I know, the banks were NOT nationalized (then), and these reports are probably mistaken. Icelandic government even said loud and clear on one occasion that they are NOT nationalized – they are well aware that nationalization would make them liable for many thinks they don’t want to be liable for.
As far as I know, the government, or one of its agencies, simply sent their own people to the banks and order the managements to step down, so they can be replaced with their own people. This was made possible by emergency legislation, but indeed looks exceedingly strange.
So the government is now *managing*, but not *owning* the banks, and of course, the selective freezing of deposits was done on the order of government. As far as I know.
@bjarni:
You say:
1. All the Icelandic deposits of the old banks were then transferred over to the new banks and guaranteed by the government (this had to be done to avoid a run on the banks by the Icelandic population)
That exactly is the problem, which can land the iceland government in court, and liable for losses of other depositors. And that was precisely (one of the) actions that enraged foreign governments.
You may never, never, do this. Regardless of the reasons, you are not allowed to split savings accounts according to the domicile of the savers and then decide that you will protect some, and let others rot.
You have to either declare bankruptcy, and after that, the things go their way under a supervision of the bankruptcy court, where debts are priritized (depositors and secured creditors first, rest later, sharehorders last), or you can choose NOT to declare bankrupcy and honor ALL commitments.
@mrk,
yes. I read. As you may notice, the savers did have their guarantee honored, and the holding company declared bankruptcy (chapter 11). Structure of WaMu holding company allowed this operation (it was a holding!), and senior lenders to the holding company consciously took the risk when lending to the holding company.
None of this applies to landesbanki:
– it was not seized
– it did not declare bankruptcy
– guarantees are not honoured.
MrK and Bjarni focus on precision legal issues, and I have no doubt that they are correct.
Again from a previous posting – this was IceSaves response to UK IceSavers just before it froze accounts.
In the unlikely event of problems; how would the passport protection work?
This is something we’ve raised with Icesave; below is its response, which was backed up by a document from the Icelandic Financial Services Association; confirming the legal strength of the info.
“Icelandic banks pay into a fund which is set aside to be paid out for compensation should it be needed – the UK scheme doesn’t have this and could therefore technically take longer than the Icelandic scheme!” (Note from Martin: The UK scheme is set up to call money in if needed, rather than work on a pot of money system).
All talk of compensation schemes is purely hypothetical because they have never been used, but given the above, there is no reason to assume that the Icelandic scheme would be any more complicated or take longer.
In the extremely unlikely event that the Icelandic government wasn’t in a position to meet all claims, all the Nordic countries have an arrangement where they will step in and help any one of the participating countries that are in trouble so there is an additional layer of reassurance and cover.
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!”
Icelandic lawyers may wish to conduct a legal dance on the head of a pin, however
Do we therefore forget old fashioned principles like honour and duty?
I rather prefer BC123’s succinct analysis of the issue.
Bromley86 reminds us Geir said – “it’s everyone for themselves”. In the world of realpolitik Mr Geir will learn that those countries duped by Iceland have the means to help Iceland out of its hole – or indeed to make sure it stays in. There is more than one way to skin a cat, as the saying goes – or in this case, a skunk.
@Peter – London
The letter from the Icelandic authorities said that they would *support* the deposit fund in getting the necessary funds.
At the time there were ongoing talks between financial authorities in Britain and Iceland about the IceSave accounts which would have moved the accounts under the UK deposit protection scheme.
Unfortunately what happened then is that the UK government erroneously thought the Landsbanki was moving funds to Iceland from IceSave when in fact the opposite was true, funds were being moved to the UK to cover the deposits. By essentially placing Iceland on a list of terrorist nations all financial transactions to the Iceland were cut and the banking sector including the currency market was wiped out in an instant.
The UK government used the infamous terrorist laws to not only freeze all of Landsbank’s assets but *all* Icelandic banking assets. That resulted in the largest bank Kaupthing failing as well in spite of it having enough cash to survive.
Kaupthing’s former owners are in the process of preparing a lawsuit against UK authorities – additionally there is a possible separate lawsuit from the Icelandic government.
Bromley86, thank you for your response.
As far as I know, the Icelandic government has never said that the Icelandic depositors should have any more rights than the foreign ones, when the old banks are liquidated.
What is probably causing the confusion, is that on 7th of October the Icelandic government passed special emergency laws, that gave it broad powers to “take over” (NOT nationalize) any Icelandic banks before they would go bankrupt.
Subsequently, during the 7-9th of October, all of the three main Icelandic banks were then taken over and instead three new banks created by the Government.
I have not found any English translation of the emergency laws and the subsequent regulations by the financial authorities (FME):
http://www.fme.is/?PageID=866
Here is a short description:
1. All the Icelandic deposits of the old banks were then transferred over to the new banks and guaranteed by the government (this had to be done to avoid a run on the banks by the Icelandic population).
2. Most of the loans and assets of the old banks based in Iceland were also transferred over to the new banks.
3. An independent certified valuation will be done within 30 days on the value of all the transferred assets and liabilities, and the new banks will be responsible for paying to the old banks a bond covering the difference.
4. The new equity of the new banks was provided in Icelandic kronas by the Icelandic government that
owns them.
5. All the depositors of the old banks, regardless of which country they are from, will have the same priority claim over all other creditors to all the assets of the old banks, during the liquidation.
6. All the owners and stockholders of the old banks automatically lost all their investments, and all their directors and board members were removed.
What is often misunderstood, is that the Icelandic government was looking at the very real possibility that ALL the banks in Iceland would go bankrupt within the matter of days, which would probably have completely collapsed the whole economy. The emergency laws were passed for the specific purpose of making sure this would not happen.
All the transfers and capitalizations of the new banks were done completely in Icelandic kronas. No foreign deposits or currencies were used. In fact if you had an account with an Icelandic bank in any foreign currency, you could not withdraw your money from that account. The Icelandic krona is now more or less worthless outside Iceland. All currency transactions in Iceland are now restricted.
The reason the assets cannot effectively be netted against the foreign claims, is that all the foreign depositors want to be paid right now, not later when the assets are liquidated (which could take years).
In the meantime, someone has to come up with the money to pay the foreign depositors in foreign currency (GBP, EUR). Iceland is unfortunately not able to do so, as it is way too small and simply doesn’t have the money.
The Icelandic population, which is already suffering greatly, feels very much betrayed by this whole situation, which was created by the banks and exaberated by pure incompetence of all the relevant governments and agencies.
There is no political support in Iceland to accept ANY loans, that would make the Icelandic population responsible for paying anyone anything more than what they are already legally required to.
Hi,
I’ve just researched a bit on the net. The following English and German reports state that Landsbanki was nationalised before freezing foreign assets:
All Reports from October 7th:
Telegraph headline: “Iceland’s Landsbanki nationalised as crisis deepens”
http://www.independent.co.uk/news/business/analysis-and-features/landsbankis-nationalisation-explained-954007.html
The Guardian, Oct. 7th: “The Icelandic government now has control of two of the biggest three banks in the country — the only one remaining in private hands is Kaupthing.” – http://www.guardian.co.uk/business/2008/oct/07/iceland.banking
The Independent:
One of Iceland’s biggest banks, Landsbanki, was nationalised by the country’s government today.
Q: What has happened?
A: The Icelandic Financial Supervisory Authority issued a statement saying the country’s government had taken control of Landsbanki. The move follows emergency legislation passed by the Icelandic parliament yesterday, giving the financial regulator the power to dictate banks’ operations, including forcing them to sell overseas assets or merge with rivals.
http://www.independent.co.uk/news/business/analysis-and-features/landsbankis-nationalisation-explained-954007.html
Just in case the British newsreporters are seen as unreliable – the same message comes from German reports on October 7th – Landsbanki was nationalised – see:
http://www.spiegel.de/wirtschaft/0,1518,582633,00.html
From Austria – October 7th:
Island verstaatlicht Bank (Landsbanki).
http://www.wirtschaftsblatt.at/home/international/wirtschaftspolitik/345596/index.do?_vl_pos=r.1.NT
According to all these reports Landsbanki was nationalised on October 7th before the government froze foreign accounts. This would mean that the Icelandic government is responsible for Landsbanki funds.
Strange of the british and deutch, the financial system cant hardy get better if they allow Iceland to go bankrupt…. Well u can always count on Norway. There would be a revolusion here if the goverment dont help Iceland… good luck
@bc123a
Have you read what the American government(through FDIC) did to Washington Mutual when it failed in September?
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2VofC5midrw&refer=home
Oh, and great post on the status of the banks bc123a.
It’s posts like that and Bjarni’s that keep me coming back here.
MrK. The IoM situation.
The IoM is part of Britain but, and here it is wierd, it is not a part of the UK (or the EU). The UK takes care of all of it’s international interactions though. Same with Guernsey/Jersey etc. It’s a stupid feudal leftover.
Importantly though, it means that these small islands have made money as offshore financial centres that are not subject to the same laws (especially tax laws) as UK banks. Most imporantly, they’re not a part of the UK compensation scheme.
That’s been a problem in the IoM, which has it’s own scheme, but a disaster in Guernsey, which has no deposit guarantee (actually, I think it does now but that won’t apply to Icelandic banks).
>>I thought Landsbanki was nationalised before it went bust – doesn’t nationalisation mean that a government takes on responsibility for the nationalised institution/organisation?
Indeed it does.
And Iceland has given a written promised to raise the funds necessary to support the fund, so the Icelandic government is indeed responsible for the banks liabilities.
The Icelandic government has taken complete control of the banks, setting up new versions and thereby emphasising its liability.
Not sure that you can say that MrK. All that is certain is that the FME took control.
@Bjarni
““Whereas this Directive may not result in the Member State’s 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.”
But this part of the agreemnent is surely broken.
“and ensuring the compensation or protection of depositors under the conditions prescribed”
Since no such money existed or if it did, it wasn’t enough to meet the commitments in the first place as per the Directive.
In regards to the IOM deposits it is my understanding that those deposits were made to british banks, i.e. british companies owned by the Icelandic banks.
Why isn’t the UK government guaranteeing those deposits? Isn’t the IOM part of the UK?
Jim, Landsbanki was *not* nationalized. It was a private company that went bust.
Bjarni. Many thanks for that. I’ve read through the law & directives and agree with you. Further, I also posted elsewhere after I read MrK’s post and people there have confirmed what you’ve said.
Of course, Icesave didn’t do anything to correct the impression that the guarantee was government backed – they went further and even stated that it was. Not that that’s (directly) the Icelandic government’s fault.
All I can say is “wow”. Geir was right when he said it’s everyone for themselves.
Jero. Priority in apportioning the assets appears to be the last remaining legal sticking point given that the guarantee is worthless. As I understand it, the Icelandic government is trying to put Icelandic deposits at the head of the queue. Fair enough, but they can’t expect that to be well received internationally, especially in light of the guarantee issue.
As I’ve said before, that reparations point is sensational but incorrect. It may well be true assuming that the banks have no assets, but no one has said that that is the case. Assuming that they do, those assets need to be netted off against any foreign claims before arriving at a per capita figure.
@jim,
no, banks were NOT nationalized, and they are NOT officially bankrupt – and here lies the crux of the problem:
1. Have the banks been nationalized, government would be obliged to either capitalize them sufficiently to continue operating (which is extremely difficult with the assets in 12x of iceland’s bdp and banks in default). That would mean that government would need to pour a lot of money into the banks, and of course, panicked savers would drain everything from the deposit accounts, at the same time. It is the scenario that iceland’s government cannot afford.
2. Have the banks been bankrupt, all assets would be frozen, nobody could get their money, not even icelanders. Which is also a scenario that iceland government does not want.
So, what exactly happened? Well, since iceland government did not have the funds for the first scenario, and did not want the second for political reasons, they put the bank under some kind of “government administration”.
Then, they froze the foreign accounts and declared that the banks will not honour the international obligations, while allowing icelanders to do almost normal bussines with them.
THAT pissed off foreign governments, at most the UK government, which then proceeded to freeze iceland bank assets in their countries.
Now, that action is despicable, because, iceland government’s plan was to say “fuck you” to foreign investors and savers and use the remaining liquidity for paying out the icelanders. (and, probably, then saying to foreign savers “sorry, nothing is left”, after icelandic savers would be paid in full.
This is CRIMINAL. There is no other word for it. This is the reason, why there are bankruptcy laws in civilized countries – it is called bankruptcy PROTECTION – and is designed to protect the company and its assets from selective plundering of the creditors.
So, not wanting to declare the banks bankrupt, but delcaring that they will not honour obligations (and declaration itself actually does not matter – the freezing of accounts for icesave savers does matter), iceland’s government essentially set course for wholesale plundering of bank’s assets, as the money invested by foreigners would be used in iceland to pay domestic debts.
Now, this is criminal. It is abhorrent. Imagine icesaver from UK looking how savers from iceland can raise their money from their account, and he cannot.
Now, if anyone of you think this is the normal way of doing business, you better join the mafia. It is NOT the way how civilized companies operate, EVEN IN TIMES OF TROUBLE. Civilized company HAS to declare insolvency and seek bankrupcy protection IMMEDIATELY, to prevent selective plundering of assets. Imagine government supporting this, this is what happened in iceland!
That’s why foreign governments seized assets in panic – to get leverage and some asset value, to compensate savers themselves, as it was obvious that iceland’s plan was NOT to declare banks bankrupt – THEY ARE NOT OFFICIALLY BANKRUPT, have this in mind – to allow them selective payouts of their debts.
This is corrupt and criminal behaviour. As you may read, the government simply split the Landsbanki into two entities, one having domestic business, and the second one, presumably having all the debt.
This is even more criminal. Nowhere in civilized world you are allowed to split business entity to one which has assets, and the second, which has debt, and leave the second to die…
It goes against all principles of civilized trade, people. No wonder no one wants to lend you any money.
And still the news is all about Icesave and not the depositors of Landsbanki Guernsey.
I thought Landsbanki was nationalised before it went bust – doesn’t nationalisation mean that a government takes on responsibility for the nationalised institution/organisation?
I quote somebody’s earlier comment: “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.”
I too believed that there was such a Germanic brotherhood. But here’s roughly what has happened, from our standpoint at least. In early October, we Icelanders face what most of us never really considered; the Icelandic banks are on the brink of collapse. The government takes control of the banks. The UK freezes assets in the Icelandic banks, and at the same time refers to the EEA agreement that our government should insure all the UK depositors. Our currency is effectively ruined. A major depression, one that few Western nations have had to face in the last century, is inevitable, unless we are lend money from abroad to restore some stability. The UK and Netherlands are against the IMF lending us anything, because we simply can’t pay back everything they want us to. So our whole economy is in an even worse situation than before. An absolutely miserable situation. And I see no Germanic brotherhood on behalf of the British government.
Icelanders are in general a well-educated and honorable nation. We have all the sympathy for people who feel like their money is lost because of this catastrophe. Seriously. But this is not a question of political will. It’s a question of whether the Icelandic economy will be enslaved for the next several decades to pay up the dept of private companies that were ruled by idiots who happened to be Icelandic.
Our whole banking system, which was ten times as large as our economy, has collapsed. Icelandic public has lost a lot of their savings forever, unlike foreign savers who will get their money back whichever government will have to pay. And what people have been arguing here is true; as a matter of fact, the foreign claims on the Icelandic government are 3-4 times as large, per capita, as Germany’s reparations after WWI.
MrK. Ah, I see. Rather glad the UK froze those assets then. Who said this:
“The Icelandic government reiterates that if needed it will support The Depositors’ and Investors’ Guarantee Fund in raising necessary funds.” 08/10/08
“There are good prospects that Landsbanki’s assets in the Netherlands and Britain will go a long way toward covering the claims that savers in these countries have on the respective banks – which will in turn reduce the claim that falls on the Icelandic state.” 16/10/08
Good to see that you and I are on the same page though as regards the real intent to pay the guarantee. Looks like there’s been precious little honesty by the government (not the UK one, who have said that Iceland was not going to honour the guarantee, but the Icelandic one who,at times, have said they would).
Several messages above have mentioned that Iceland as a country has the LEGAL obligation to guarantee all deposits of IceSave. It is important to read the actual laws and treates that cover this subject, as the facts turn out to be very different from what most people think they are!
First, here is the Icelandic law that covers the Icelandic Depositor Guarantee Scheme fund, both in Icelandic and an English translation:
http://www.althingi.is/lagas/nuna/1999098.html
http://eng.idnadarraduneyti.is/laws-and-regulations/nr/1165
In short, the law specifies that the fund is a private foundation, which is NOT funded in any way by the Icelandic government. Instead the fund will receive payments from the covered banks amounting to 1% of the average amount of guaranteed deposits. This is relatively high amount compared to most other European countries, as they typically require payment from the banks to their respective fund of less than 1% of the guaranteed deposits.
If a bank defaults and a payment is required from the fund, the law states that each claim up to 1.7M Icelandic kronas (about 16K GBP/20K EUR), should be paid in full.
In the event of the total assets prove insufficient, the directors for the fund, may decide to take out a loan in order to compensate losses suffered by claimants. There is NO mention anywhere in the law, that the Icelandic government is in ANY WAY required to step in and cover any payments for the fund or or the depositors!
Next, here is the EU directive 94/19/EC that covers the requirements for European Deposit Guarantee Scheme’s, which was used as the basis for writing the Icelandic law.
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31994L0019:EN:HTML
The directive says that each Member State must establish an independent Deposit Guarantee Scheme fund, that will cover a minimum of 20,000 Euros for each depositor of the covered banks. The only mention in the directive on how the fund should be funded, is in one of the last WHEREAS clauses:
“Whereas it is not indispensable, in this Directive, to harmonize the methods of financing schemes guaranteeing deposits or credit institutions themselves, given, on the one hand, that the cost of financing such schemes must be borne, in principle, by credit institutions themselves and, on the other hand, that the financing capacity of such schemes must be in proportion to their liabilities; whereas this must not, however jeopardize the stability of the banking system of the Member State concerned.”
Basically, this says the banks should finance the scheme in proportion to their liabilities, but the payments MUST NOT be so high that it would jeopardize the stability of the banking system itself.
The second WHEREAS clause that follows is also interesting:
“Whereas this Directive may not result in the Member State’s 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.”
This simply means, that the Directive CANNOT be used to make the Icelandic government liable in respect of depositors, so long as the depositor guarantee scheme has been introduced and officially recognized, which it has.
Therefore, based on the Icelandic law and the EU directive, there is no LEGAL reason why the Icelandic government itself would be required to guarantee the IceSave depositors. The depositors and their respective governments, only have a claim to the Icelandic Deposit Guarantee fund, which is bound by the Icelandic law and the EU directive, and can be funded only by the Icelandic banks.
I challenge anyone to go ahead and read through the actual laws and verify this. If you find anything there or any other International, European or Icelandic laws that dispute any of this, I would be most interested in hearing about it. Please give full URL references and exact quotes.
The Icelandic goverment therefore has perfectly valid legal reasoning to refuse the demands of the UK and Netherlands goverments. It has stated before that it is perfectly willing to go to European courts over this, which is the correct venue anyway to resolve international issues like these.
The ONLY realistic way the IceSave depositors will get paid, is for the UK/Netherland Governments to pay them first directly (which they have said they are now going to do according to the news). Those governments will then have a priority claim against the assets of the old Icelandic banks, when they are finally liquidated.
There is a very good chance that the assets (mainly loans) of the old Icelandic banks will cover all the deposits in the end, as they are worth more than 2 times the amount of deposits. It will just take some time for the liquidation to go through.
to clafify i was talking about the bankruptcy of the banks not of Iceland.
Lets say i buy a car on a loan. I also have plenty of money so i lent some to my brother and buy a foreign company. The first month is over and the car company wants some money. Now i make a big speech that that would not be in my best interest. Chances are that he confiscates my car and goes to court colling me a thief.
All Islands banks have 8-14% capital of their balance sheet, so they are not bankrupt, nor has any firm requested bankruptcy, and if you are not bankrupt you are expected to pay all your bills not just a part.
It has been warned from the very beginning by the Dutch and probably others that the acceptance of the loan from the IMF would be dependend on Islands behavior (the dutch central bank is sinds june in conflict with landsbankski because they don’t stick to the rules but the Islandic fme refussed to put pressior on Landsbankski)
2th as above mentioned:
Some think that Iceland made a (GOOD) deal, but they just agreed to paying the first 20800 EURO to the Dutch state if the dutch state should pay the dutch savers this money first. This would mean that Island would keep ~700 million to which they are not entitled, unless they are bankrupt which they are not. Also they have an improved liquidity af ~2Billion Euro (the total sum of Dutch icesave savers)
Also i have seen allready 2 attempts to make assests dissapear from the bank (art and loans from bank employees) so to make the bank go bust, which is fraud (as mentioned in for example the English ‘Terrosist, fraud and organised crime act’)
3th The banks had an Aa1 rating which is very stable. This might change in future if ratings agent might be held responsable for there advice and Iceland is seen as less trustworthy.
[…] full story >>> […]
What about the Kaupthing Singer and Friedlander IOM depositors? They only comment on the Icesave depositors. Kaupthing bought recently Singer and Friedlander (where we had most of our savings) and now they took all the money away from the island, and our savings with it. Will this IMF loan be used to pay us our money or only the Icesave?
Here’s an interesting question: In a country of 300,000 people who have been totally genetically isolated for centuries, and everyone is related–what’s a “private” Icelandic bank? That’s a joke! And the average Icelander benefited greatly from the house of cards being built by these “private” banks. The government was guilty of willful blindness. The “fairy tale” is indeed over.
Andrew, The EB/EFTA agreement stipulates that the deposit compensation fund handles the first 20k euros. *That fund does not and never has had a government guarantee.* Why? Because the fund were never designed to handle a total collapse of a nations banking system, and the same goes for the rest of Europe.
The Icelandic government wanted this to be put before a European court but of course the UK government said no. They know they haven’t got a case.
Bromley86, Again. The depositors fund has nothing to do with the government. It is an required but *independent* fund. The treasury does not guarantee its funding. Look it up.
In regards to the Versailles comparison then yes. UK/Dutch claims would be around 3-4 times those of the ones Germany were obliged to pay after WWI. The assets should cover the payout though, unless of course if as rumoured the UK is fighting so that deposits don’t have priority over other claims and wants the whole bill paid from the Icelandic treasury.
On Nov 9, 2008, MrK said:
Landsbanki was a *privately* owned bank in Iceland. It had nothing to do with the government.
As the Icelandic GOVERNMENT guaranteed the first €20000 under the passport scheme, it would appear that you are in error and your goverment dishonourable.
Although the guarantee of the depositors’ funds had everything to do with the government.
In the absence of any supporting info, I think you can take that 4x Germany’s reparations figure to be bogus. I mean you can’t have it both ways – either the net assets/liabilities is hopefully going to cover the debt, or Iceland is facing 4 times the liability of inter-war Germany. Both can’t be true.
If we’re talking about recent Icelandic laws, a more important one to consider is the preferential treatment to be given to Icelandic depositors (including non-retail (i.e. corporations)). That’s been the root cause of a lot of trouble, along with unceratinty as to the honouring of the EEA deposit guarantee.
Icelanders! Know your enemies and friends now!And act accordingly. God Save Iceland..for Icesave could not do that.
Mr K – it doesn’t matter how much you fervently wish something to be true, if it’s not true it stays that way. Landsbanki was a private bank operating its subsidiary Icesave outside of Iceland under the terms of the EEA, which requires that the Icelandic goverment underwrite the 20K euro guarantee. If the Icelandic people didn’t wish their freely elected government to undertake this commitment on their behalf, they were free to replace them.
Landsbanki was a *privately* owned bank in Iceland. It had nothing to do with the government.
According to Icelandic laws deposits have a priority in payout to other liabilities so hopefully the bank’s assets should cover them all.
Those who think that the Icelandic goverment will accept paying *4 times higher compensation* for a failure of *private* bank than Germany had to pay in reparations after World War I are frankly mad.
@andré
“no saver in Iceland has lost a penny in their newly created banks.”
This is absolutely not true. Don’t invent things that suit you.
A lot, and I mean A LOT, of people have lost their savings here in Iceland.
BTW, source link:
http://www.dutchnews.nl/news/archives/2008/11/dutch_british_block_imf_loan_t.php
Best of luck Dario.
…”and whilst the returns offered were good ”—GREED is STILL biggest motivator! ”if it sounds to good to be true, then it often is”—
I maybe misused the words ‘offshore’. I was living in Ecuador, there were many banks in that country, one bank was LLOYDS, I went with them because they seemed safe since they had UK connections. Well, when Ecuador went broke , in 2000, LLOYDS ‘cut their apron strings’ with LLOYDS, Ecuador branch./ I am sad to see anyone lose their savings. I was 53, disabled from Vietnam police action and had no hopes for any economic future. It was VERY difficult to start over again at that age and disability. I worked labour jobs, lived in an old car, for years, and got back on my feet.
#STAN – if you were banking ‘offshore’ then you avoid both tax & forfeit state protection. Please have care and sympathy for those who deposited monies for safety and guarantees.
# Dario – your reasoning is logical – If STAN were a counsellor – people would be falling to their deaths from buildings as if wedding confetti.
Below is a posting I made on this site relating to a different topic – but it accords with your view. UK savers will be compensated by their own government given Iclelands failure to honour its guaratees. Your government is in alliance with UK & all will be well for you I’m sure.
On Nov 8, 2008, Terry said:
# Paul said – “Personally, I think that individuals, banks and governments putting their savings away in Iceland have simply been foolish”
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 Indian 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.
@STAN get you money out of the baltics!!! And I mean really really quick!!!
Dario ”It was handy especially because you could do everything online.” I currently happen to have money in Rabobank, in Hoorn, Netherlands. I also DO anything I need , online, with Rabobank and I live in the Baltics. Of course, I do not get high interest rate/3.5%,I think it is. I bet Iceland banks paid 6 or 7% interest.
I lost EVERY cent I had, at age 53 , in year 2000, in a bank in Ecuador, named Lloyds. The whole country went broke and Lloyds did not pay me any money, because they were an ‘offshore bank’. I could have gotten as high as 40% interest, in an Ecuadorian bank, but I went with 5% interest, with Lloyds bank, because I was told ‘we are safe’. I learned= it is better to only do banking in your/my OWN country than to go elsewhere. However, I now have 50% of my money in the Baltics, so I still have not learned a lesson. I still say this; you were probably getting a little higher interest , in an Iceland bank, and this was a major reason you went with that bank instead of a bank in the Netherlands. Maybe you paid less tax on your interest, maybe of which is considered income in Netherlands. I do not personally know you so it is not possible for me to offend you. I still say ‘greed(in this case,higher interest and possible less tax on interest) is the biggest motivator’–
Stan – Icesave offers about the same as 2 or 3 banks in Holland these days. It was handy especially because you could do everything online. Icesave had the permission of the Dutch Bank and was ‘A rated’. Do you imply that my country should never have permitted Iceland to do business here? I have not bought shares, am not supposed to run such risks. Anyway I really wish for you never to happen in such loss.
Cool of you to call me greedy anyway.
Mr. PM, you can ask for help form China, but you need ask Björk, the silly singer, who stupid enough screamed “Free Tibet” in Shanghai, apologize to 1.3B Chinese first.
If a country let someone (whoever he or she s from) to open a bank in his country it means that they accept to take the potential risk. owner of kaupthing can be icelander but it doesnt mean iceland has to pay it. iceland is only 300 000 people. it s not fare to show world that iceland is quilty . It is not!..
Makes me proud to be English, dont know what the problem is, Iceland must realise the position it is in if it ever wants to be treated s a serious independant nation again.
Dario-Well, it is terrible that you lost, so far, your money. However, you went with Icelandic banks because they pay 1 or 2% more interest, greed on your part, instead of using your own countries banks with better guarantees. Also, you have reminded me to ‘be here now’ and not try and save for later since later is a fantasy.
What about the disgraceful abuse of innocent old retired people that the Landsbanki put in place with flawed Equity Release programmes which were kept in place even when they knew they could not work as promised?
These old people in their 70’s and 80’s are now without any funds, terrified of losing their homes as the greedy Landsbanki grabs everything they posess, after a display of outrageously bad management and a pack of lies.
Luxembourg does not say anything about what was allowed under Luxembourg law in the name of Landsbanki, either, does it?
The whole thing is barbaric.
So, will the lack of IMF loan lower ISK rate to the Euro? Are there people on street corners, like in Mexico, saying ‘psfft psfft, I have special rate-500 ISK to one Euro”.
I have worked hard for years, through the lunch-breaks and week-ends to put together a decent private pension fund in Holland. Have no car (have a bike instead), have spared on all ‘useless’ things this world has to offer. Now somehow the largest part of my savings is vanished. I find it hard to explain to myself and to my family. I look at myself in the mirror and see my white hair and say what have I done? I have grown at least 5 years older in the past few weeks. Will a solution be found for us common people?
As a Kaupthing-victim in Belgium, we are waiting for more than a month for our money. PM Haarde promised PM Leterme to pay back 230 million EUR that Kauphing Iceland has to pay to Kaupthing Luxemburg. Finally, we see that Iceland isn’t paying at all, putting more than 20.000 honnest savers and 500 companies in a very difficult situation. People are really scared, although no saver in Iceland has lost a penny in their newly created banks.
Iceland has to pay back all their debts. It’s about savings money, not money from stock exchange speculation.
But PM Haarde has said on many occasions that the loan had been negotiated and finalized!
No, no – I couldn’t believe that he lied.
Strangely enough, dutch newspapers also wrote that there has been an agreement between IS and NL… Iceland pays back the money by means of a loan of the dutch government. This whole issue is starting to sound like foul play.
Time to pay your bills, Iceland. You can whine ‘woe is me’ all you want, and if you are angry, be so at YOUR greedy bankers that destroyed your ISK and your respect in several countries that have done banking with you. Maybe next ‘citizens group’ complaining will be with 300,000 Icelanders and NOT 4,000!
So we now have the paradox of an immoveable object meeting an irresistible force. Iceland being the object and UK, & Dutch being the force.
In a speech at the Alhingi on 30 October, Haarde stated-
“The two governments are engaged in discussion regarding the resolution of the so-called IceSave accounts in Britain. We hope that a joint solution can be found, but the Icelandic authorities have been quite clear on the point that we will never agree to conditions that would ruin our economy. This, the British must understand.”
Well – no Mr Haarde – it seems that it is you that has to understand – and you will remain sitting on ‘the naughty step’ until you do.
If the Icelandic government did not expect such a response then it is either stupid, naïve – or both.
But I thought Iceland had already agreed to repay the Dutch and had even secured a loan from them to do so?