May 19, 2013
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Description
The 2008–2011 Icelandic financial crisis was a major economic and political crisis in Iceland that involved the collapse of all three of the country's major privately owned commercial banks, following their difficulties in refinancing their short-term debt and a run on deposits in the Netherlands and the United Kingdom. Relative to the size of its economy, Iceland’s systemic banking collapse is the largest suffered by any country in economic history.
In late September 2008, it was announced that the Glitnir bank would be nationalised. The following week on 7 October 2008, control of Landsbanki and Glitnir was handed over to receivers appointed by the Financial Supervisory Authority. Two days later, the same organization placed Iceland's largest bank, Kaupthing, into receivership as well. Commenting on the need for emergency measures, Prime Minister Geir Haarde said on 6 October, "There [was] a very real danger... that the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could have been national bankruptcy." He also stated that the actions taken by the government had ensured that the Icelandic state would not actually go bankrupt. At the end of the second quarter 2008, Iceland's external debt was 9.553 trillion Icelandic krónur, more than 80% of which was held by the banking sector. This value compares with Iceland's 2007 gross domestic product of 1.293 trillion krónur. The assets of the three banks taken under the control of the FME totaled 14.437 trillion krónur at the end of the second quarter 2008, equal to more than 11 times of the Icelandic GDP, and hence there was no possibility for the Icelandic Central Bank to step in as a last lender of resort when they were hit by financial troubles and started to account asset losses. As part of the urgently passed emergency law on 6 October, the path forward for the receivership held banks was dictated to be a secretion of all domestic assets into new surviving public owned domestic versions of the banks, while leaving the foreign remainings of the banks into receivership and liquidation. This move worked as a protecting hand for the Icelandic economy, as it meant that the domestic residents would not suffer any losses from the systemic bank failure.
(via Freebase)
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