Collapse of Icesave - Icelandic Banking
Introduction: The Collapse of Icesave
In 2006, Landsbanki – one of Iceland’s three major banks – officially announced the launch of a new project: Icesave. Icesave, a new brand to be operated by Landsbanki, was designed to offer online savings accounts with low commitment, ease of access, and high interest rates in both the United Kingdom and the Netherlands (Landsbanki Annual Report 2007). In the UK, the interest rates were higher than 6%10; in the Netherlands, 5.25%11.
As more evidence of the Icelandic banks’ extreme risk levels was revealed, however, fear consumed those who had deposits in Landsbanki. The speculation of the Icelandic banks, in conjunction with ensuing global financial crisis, sparked a run on the bank in the UK – a run on the bank that marked the demise of Landsbanki. The Icelandic Parliament issued Act No. 125/2008 on October 6, 2008, in which the Icelandic government took Landsbanki under its control as a result of “unusual and extraordinary circumstances on the financial market.”18 The Icelandic Government also stated “that deposits in domestic commercial and savings banks and its branches in Iceland will be fully covered,” making no mention of the British or Dutch deposits in the Icesave accounts12. On October 7, Landsbanki was placed on receivership by the Icelandic government. The FME, Iceland’s Financial Supervisory Authority, clearly stated that the objective of taking control of Landsbanki was “to guarantee a functioning domestic banking system.” The bank would operate as usual, and domestic deposits were fully guaranteed, but Iceland once again failed to make a mention the bank’s foreign deposits13. Iceland moved all of Landsbanki’s domestic assets and liabilities to a new government-owned bank, Nýi Landsbanki. The Icesave accounts and any other foreign assets and liabilities remained under the old Landsbanki, which now had to pay off €22.2 billion of liabilities with only €12.1 billion in assets14. The Icesave dispute had
In 2006, Landsbanki – one of Iceland’s three major banks – officially announced the launch of a new project: Icesave. Icesave, a new brand to be operated by Landsbanki, was designed to offer online savings accounts with low commitment, ease of access, and high interest rates in both the United Kingdom and the Netherlands (Landsbanki Annual Report 2007). In the UK, the interest rates were higher than 6%10; in the Netherlands, 5.25%11.
As more evidence of the Icelandic banks’ extreme risk levels was revealed, however, fear consumed those who had deposits in Landsbanki. The speculation of the Icelandic banks, in conjunction with ensuing global financial crisis, sparked a run on the bank in the UK – a run on the bank that marked the demise of Landsbanki. The Icelandic Parliament issued Act No. 125/2008 on October 6, 2008, in which the Icelandic government took Landsbanki under its control as a result of “unusual and extraordinary circumstances on the financial market.”18 The Icelandic Government also stated “that deposits in domestic commercial and savings banks and its branches in Iceland will be fully covered,” making no mention of the British or Dutch deposits in the Icesave accounts12. On October 7, Landsbanki was placed on receivership by the Icelandic government. The FME, Iceland’s Financial Supervisory Authority, clearly stated that the objective of taking control of Landsbanki was “to guarantee a functioning domestic banking system.” The bank would operate as usual, and domestic deposits were fully guaranteed, but Iceland once again failed to make a mention the bank’s foreign deposits13. Iceland moved all of Landsbanki’s domestic assets and liabilities to a new government-owned bank, Nýi Landsbanki. The Icesave accounts and any other foreign assets and liabilities remained under the old Landsbanki, which now had to pay off €22.2 billion of liabilities with only €12.1 billion in assets14. The Icesave dispute had