Will Nordic banks support Iceland?

money

Iceland may have help from regional sources should a serious financial crisis crash their system. According to Kauppalehti, a Finnish financial news source, the Bank of Finland may be in a position to assist Icelandic banks should they continue to face difficulties.

According to Finnish reports, banks in the Nordic region agreed long ago to cooperate regionally in order to maintain local financial stability. Banks which operate in at least two Nordic countries could, according to this agreement, expect to be bailed out in case of troubles.

If the reports are true, Glitnir, Kaupthing and Landsbanki, which all have operations in Finland, may be in a position for future assistance.

Sweden’s Riksbank announced earlier this week, however, that the Nordic banks have no such agreement, according to reports on Bloomberg.com. That website reports that the Riksbank rejected the idea that they would assist Iceland’s banks in a financial crisis situation.

Mattias Persson, the head of the financial stability department at the Riksbank gave an interview on the subject on Thursday. He said that there was a memorandum of understanding between the Nordic central banks, however it “exists to allow the sharing of information, not to provide any lending facility,” he said.

“I don’t think anybody ever really thought they would step in and help, nor do I think that that’s where we’re going,” said Ludvik Eliasson, an economist at Landsbanki. “The problem is more that the central bank can only provide liquidity in krónur whereas the commercial banks need liquidity mostly in other currencies, which is a very unusual situation.”

Iceland’s central bank has yet to comment on the issue.