Geir H. Haarde, the Icelandic Prime Minister, says in an open letter to the Norwegians, which Dagsavisen published on Friday, that Icelanders have a strong sense of history and do not forget displays of friendship when much is at stake.
“When natural disasters have befallen Iceland, like the volcanic eruption in the Westman Islands in 1973, many friendly nations reacted quickly and supported us generously; and we have also tried to offer a helping hand to others in difficulty. Now that we find ourselves in another ‘disaster’, this time man-made, it is reassuring to find that we still enjoy this support,” Haarde wrote, among other things.
He said that the financial crisis is ravaging the entire world and that Icelanders know that hardship will be widespread and that all governments bear, first and foremost, responsibility for their people’s best interests.
“Icelanders’ thankfulness to our international friends is therefore only greater, and has increased our positive outlook for the future that this broad cooperation can bring an end to the global economic crisis,” MBL.is reports Haarde as saying.
The letter can be seen here (in Norwegian).
“Icelanders remember acts of friendship”
Uhuh, uhuh? Well you know Icelanders, quite a lot of people outside your country remember the acts of hostility that you have done.
People have even longer memories when it comes to who stole their life savings, Mr Haarde.
As former employee in Landsbanki Norway I do trust that Iceland pay what you owe me and other norwegians. If we get stuck with a loss after trusting you, and in addition have to support Iceland in this troubled time, it is indeed unreasonable; and I will never forgive Iceland!
I suppose, Haarde should extend his gratitude to the other nordic countries (i.e. Denmark, Sweden, Finland) as well who not only provide Iceland with life saving swap agreements, but also with extensive loans.
my my arnt the negitive whingers out again do you think you prats really get taken serious
Alan Matthews was born shamefully a brit and got wise and left Iceland Rocks
Hi Fishy
If Haarde had ANY self respect for himself or Iceland,he would go far, far away and bury his ugly face deep into the sand.
Mr Haarde – the thing to remember about friends is – to not crap on them in the first instance.
To Peter (Germany):
The fact that MBL picked up that a Norwegian newspaper had picked up that Haarde had sent such a letter to their country does not necessarily mean the other Nordic countries were excluded – just that MBL didn’t pick up that one of their national papers had picked up on it….hope that makes sense.
@Alan – Don’t worry, the void left by the departure of Alan Matthews, has been overcome. I see you haven’t overcome your punktuation problem… :-)
To Peter – London:
>>>>People have even longer memories when it comes to who stole their life savings, Mr Haarde.
By the defnition, stealing means that someone is taking your property unlawfully without rights or permission.
So before you accuse anyone of stealing, lets look at what exactly happened to those life savings you are talking about.
Lets assume, for the sake of argument, that this was your own life savings and you deposited them into one of the Icelandic banks before the crash.
When you open an account with a bank, you are in a fact entering into a business agreement with that particular bank. You give them your savings for safe-keeping, and in turn the bank pays you interest for being able to use your money. Based on the rules for the account you can also withdraw your money when needed.
As you probably already know, this is not the whole story. The bank will also borrow money elsewhere (credit lines form other banks, etc.) and enter into other business dealings. The money the banks receives from those activities (deposits, loans), make up whats called the liabilities on the bank balance sheet. These liabilities, along with the bank’s equity (from stockholders) are then used to lend out money to individuals and organizations at a higher interest rate, which then become the assets of the bank’s balance sheet.
This is how every normal bank stays in business. Without making money on the asset side, it would never be able to pay the interest for your deposits. The whole system works, so long as the deposits and the loans stay in, and the money that is loaned out gets paid back on time.
Just like any other bank, the Icelandic banks were taking in deposits and loans, and then loaning the money to their customers. In fact, they were doing better job at this than most other banks, since they were getting large amounts of deposits and loans, and they were not loosing money on the asset side (no toxic debt).
Now lets look at what happened with the Icelandic banks during the crash. During the summer, the governments and financial authorities, in both Iceland and Europe had become quite worried about how large the Icelandic banks had become (8x – 15x time GDP, depending on how you count it). When the Lehman Brothers went under, one of the Icelandic banks Glitnir ran into trouble with their short term financing (BayernLB in Germany pulled out of a 500M loan on a short notice). This lead to number of things happening over relatively short period of time:
1. Icelandic Central bank with the support of the Icelandic government decided to forcefully take over 75% of Glitnir.
2. Nobody believed Icelandic government had the means to take over Glitnir, so other European banks starting pulling their credit lines
3. Depositors in other countries (especially UK), starting withdrawing their money from ALL Icelandic banks (including Landsbanki and Kaupthing).
4. Icelandic government passed emergency laws to rescue the domestic operations of the Icelandic banks from total collapse.
5. The Icelandic Central bank, which had relatively low foreign currency reserves (about 2 Billion), was not able to fully support the Icelandic banks in exchanging ISK to foreign currencies.
6. Landsbanki in UK was the first bank to fall mainly due to massive withdrawals from their IceSave accounts in UK (typical bank run).
7. The UK government responded by freezing all the assets of Landsbanki, and transferring the deposits of both Landsbanki IceSave and Kaupthing Edge to ING in Netherlands.
8. This immediately resulted in Kaupthing Singer Friedlander (KSF), which was a UK bank, to fail, which then automatically caused collapse of Kaupthing around the world.
9. In a period of few days, all three of the Icelandic banks fell and were taken over by the Icelandic financial authorities (not nationalized).
10. Based on the emergency laws just passed, three new banks were started and the Icelandic assets and liabilities of the old banks were transferred over to them.
11. At the same time, a process was started where independent foreign appraisors were appointed to evaluate the exact value of those assets and liabilities. Based on the outcome of those evaluations, each of the new banks, will issue a bond to pay back the difference to the old banks.
12. The old banks will be put into administration and then liquidated over the next few years.
13. A long argument with UK and Netherlands resulted in how to deal with the depositors, which resulted in a agreement finally being reached (I am not going to repeat here the optinions of who was right/wrong in that argument, since that has already been discussed extensively in previous posts).
14. IMF other countries agreed to loan about 5Billion to help revive the Icelandic currency and economy (which was devestated by this).
15. There are now negotiations between Iceland and UK/Netherlands for a loan to cover the first 20K for the depositors (which Iceland finally agreed to cover). These loans will be for another 5Billion approximately.
So, we can now get back to the original question, that is did anyone in Iceland steal anything:
a) Icelandic banks?
As mentioned above, the Icelandic banks were running normal banking operations, and just like any other banks, had loaned money to their customers. After the crash, all their assets were frozen, by various governments around Europe. In all cases, the payments of the loans are still being collected and will be used to pay up the liabilities according to the laws of each country. There has been no evidence that anyone in the banks stole anything.
b) Icelandic government?
The Icelandic government, which was faced with immediate collapse of the banking system, used their emergency powers to avoid bankrupting the whole Icelandic economy. No country can survive without a functioning banking system, and certainly would not be able to pay anyone anything. In their view this was the only remaining option available (this point might actually be debatable, especially in the beginning of the crisis). But, to their credit, they established a process (item 11), that will be used to make sure the old banks will be paid back the fair value for the assets (less the liabilities) received. So there should be no material loss for the creditors and depositors, at least not based directly on the emergency action. And remember, only assets and liabilties in Icelandic kronas were transferred. No foreign currencies were involved! There is no doubt in both International and European laws, that every government in the world has the rights to take emergency actions to save their economy from total collapse. So assets were transferred, but with good reasoning based on law, and they will be paid for. So nothing was actually stolen here.
c) Icelandic population?
They are the ones that will suffer most from this all. Many of them have taken loans that have quite high interest rates which they are still paying. These loans are almost all either indexed to inflation or foreign currencies, leading in many cases to the loan amounts and/or payments to double. At the same time they are loosing their savings and jobs, and seeing price of goods double. It is estimated the Icelandic GDP will be reduced by at least 10% next year. They certainly did not gain anything from this, and now they will be asked to pay back loans through their taxes that will be amounting to 100% of the GDP. They certainly didnt steal anything.
So if it was not the Icelandic banks, not the Icelandic government, and not the Icelandic population, who then exactly do you think stole your life savings?
Haarde had about 300.000 friends a few weeks ago,
i wonder how many enemys he hes now,
its strange to see how blind people can be,
us for not seeing what was happening, and Haarde for imagening he can ignore a nation he ruined along with other people he still supports.
Alex, you are certainly and hopefully right. It was just that it has seemed to me that over the last few days a lot of attention has been paid to the help by Norway, but only very little to the assistance given by the other nordic nations. It’s very well possible that I just did not notice that correctly in which case I am of course sorry.
All the best to you, Icelanders!
Protesters walk into the Central Bank
http://mbl.is/mm/frettir/innlent/2008/12/01/radist_inn_i_sedlabankann/
Protest on Arnarhóll
http://mbl.is/mm/frettir/sjonvarp/index.html?media_id=21372;play=1
“So before you accuse anyone of stealing, lets look at what exactly happened to those life savings you are talking about.”
Nice summary, Bjarni! Of course, a measured view of the course of events isn’t going to stop the usual rhetoric from people who presumably think the behaviour of their own government (a politicised police force arresting opposition members of parliament) is beyond question.
Don´t you feel the Icelandic banks were engaged in fraud on a massive scale, Bjarni? How can you perceive these activities as legitimate?
Stim and Glitnir setting up shell companies to buy their own stock with loaned funds?
Glitnir and billions in poorly conceived loans to FL Group?
Kaupthing and billions in loans to company officers forgiven after the stock they were attempting to prop up became worthless?
Landsbanki and false promises to Icesave depositors?
These banks were shells for looting. And looted they were. And probably are still being, since all the same people are in charge.
You are right, Icelanders will suffer worst. And they will take a lot of their friends down with them.
Bjarni : >By the defnition, stealing means that someone is taking your property unlawfully without rights or permission.
They haven’t/can’t give the depositors money back. So its been stolen.
Simple really.
@Bjarni – your posts are interesting, enlightening, and valued. You endeavour to examine the ‘quantum mechanics’ of issues – and you do this well.
However, for those – outside Iceland damaged by events. Your paragraph ….
“A long argument with UK and Netherlands resulted in how to deal with the depositors, which resulted in a agreement finally being reached (I am not going to repeat here the optinions of who was right/wrong in that argument, since that has already been discussed extensively in previous posts).”
…sweeps over the issue of concern to those persons.
It is understood that a serious run on banking systems cannot be underpinned by any present banking guarantee system.
This is not the problem for foreign savers. There is a perception that Icelandic authorities walked away from the problem – and did not face up to it until ‘squeezed’ by ‘realpolitik’ diplomacy on the part of UK, Germany, Netherlands, and EU.
The Ireland government had the ‘balls’, in this crisis, to put its weight behind the banks – providing an unconditional national guarantee to depositors.
Whereas, the Icelandic government chose the ‘Codpiece’ option (an exaggerated prosthetic display of testicles) – with the consequent resultant impotence.
For all parties – resolution will be achieved when a thorough ‘post mortem’ is conducted.
@Bjarni: Again, thanks for your always interesting comments. Everyone should know that Icelanders are really suffering at the moment, and most Europeans feel sorry for them, I am sure.
Just as a sidenote: The BayernLB which seemed to have played such an important part in the Icelandic bank crash is going to lose an enormous amount of money – not least because of its Icelandic investments. Today the state of Bavaria has announced that it is going to rescue the BayernLB with a cash injection of 10 bn Euros. And nobody knows whether Bavaria and its citizens will have to pay a lot more in the end…
Peter – London,
Bjarni is right.
Nobody stole your money. When your bank goes bankrupt, you lose your money. It is a tough rule of capitalism. Remember it, next time read a newspaper giving lessons of laissez faire capitalism to others, such as the Times or the Torygraph.
@Bjarni, you numbered points are a good summary, although I must correct point 6: the first Icelandic bank to go into default was Glitnir, on 3 October.
As for whether the Icelandic government stole anything, let’s not forget that it had very healthy tax incomes from the banks’ operations before they failed, which allowed Iceland to pay off all of its net foreign debt before the crisis struck.
As for the Icelandic population having stolen anything, they didn’t really have much say in the matter. But the new banks have written down their Icelandic loan book by between 50 and 67 percent before they calculated how much they owed to their predecessors (ie, foreign creditors). Those that control the new banks only expect Icelanders to repay between one-third and one-half of their debts to their local banks, and those outside of Iceland to make up the rest…
As for who “stole” the life savings, it’s an odds-on bet between Polish builders and French champagne houses: readers may take their pick according to their personal political views! As to who WASTED all this money, I think its clear to everyone that the responsability lies closer to Reykjavík than to London.
Bjarni,
Your analysis glosses over the role of the central bank, and it’s low foreign currency reserves, when in fact this is the crux of the problem. Iceland is not just another victim of the global financial crisis – that was just the spark that set things off. Disaster was inevitable sooner or later, because the future of both Iceland’s economy and foreigner’s savings was staked on a massive currency gamble.
The problem was not the size of the banking sector per se, but the inability of the central bank to stand behind it. While massive amounts of foreign currency were flowing into Icelandic banks, the central bank should have been selling Krona and building up sufficient foreign currency reserves to stand behind them. This selling would also have offset the demand for Krona, limiting the currency bubble and preventing the banking sector from balooning too far. Instead they just let it ride.
As for who benefitted from this, well actually all of the groups you list above:
a) The banks grew massively and made huge profits.
b) The goverment enjoyed popularity because of the high standard of living.
c) Icelanders enjoyed a fantastic standard of living that was the envy of the world.
All of this was built on a pyramid scheme – the spending power that your massively over-valued currency had abroad. You were all unwitting beneficiaries. Of course, now the bubble has burst no-one feels like a winner.
Now this may not be the fault of the ordinary Icelander, but it most definitely is the fault of the government you elected. Mr Haarde showed his true colours by deliberately stoking up a row with the UK over the bogus “terrorism law” issue as a distraction to his own dismal failings.
Foreign investors basically fell for a confidence trick. Iceland was perceived as a well-governed nation, capable of proper financial management, and people invested on that basis – only to lose their money in one of the worst failures of financial regulation in history.
Physchim62 said: “As for whether the Icelandic government stole anything, let’s not forget that it had very healthy tax incomes from the banks’ operations before they failed, which allowed Iceland to pay off all of its net foreign debt before the crisis struck.”
===================================================
Did the Iceland state benefit so much from the activities of private banks operating in foreign countries?
I’d assume that in England for example, a British reg company. would pay taxes to the UK gov, The UK gov got the tax benefit, that was the whole attraction about the City – its lower tax levels. Thats why the ‘City’ grew in activity in the UK.
The Iceland gov tax coffers got boosted by growth in economic activity in Iceland.
I have yet to hear of one Icelander whose personal and mortgaged debt has been written down.
I have heard plenty that their mortgaged debt, index linked, is heading for a limit never before explored.
Percht said:
“Bjarni is right.
Nobody stole your money. When your bank goes bankrupt, you lose your money”
I didn’t have any money in Icelandic Banks. I’m not that stupid. But half a million people were and I merely pointed out that they would not forget about it. EU tax payers and council tax payers are out of pocket too.
However, As has been pointed out here before, Icelandic banks ensured domestic depositors had their deposits protected. Basically the banks took overseas depositors money and paid Icelandic depositors – stealing from one to pay the other.
Another point, telling bank depositors that they are stupid for expecting their money back will only emphasise what a bunch of thieving crooks the banks were.
Bull**** explanations do not cover up for the fact that
the Icelandic banks took money and refused to return it.. in English thats called stealing.
Terry said:
The Ireland government had the ‘balls’, in this crisis, to put its weight behind the banks – providing an unconditional national guarantee to depositors.
Whereas, the Icelandic government chose the ‘Codpiece’ option (an exaggerated prosthetic display of testicles) – with the consequent resultant impotence.
You do realise that when you say the Irish Gov has balls, that it had no money. That an estimated 100,000 migrants have left the country in a hurry. That if the banks actually needed money there was none to give. They had the balls to bluff, a most blatant bluff, to stop people from making a run on the Banks.
Did people actually believe the €400bn guarantee :) that was some stroke they pulled.
Now that the Irish Banks actually need capatalisation the Gov have nothing and are considering to hand over the pension money that is under its control. BTW 75% of the pensions are schemed, they have lost 50% of their original value, so far. But the people are reassured that the in the event of the schemed pensions losing all their value, the people will still have the State pension — or will they?
@Knowless, you (perhaps unwittingly) hit the nail on the head. Why were these banks Icelandic at all? Most of their business was overseas, yet they were based in Iceland and paid taxes to the Icelandic government – and were supposed to be regulated by the FME and Doddsson’s crowd. Apparently Kaupthing was thinking of moving out of Iceland, and it is claimed that that didn’t get a very friendly response from the Reykjavík powers-that-be.
Peter – London said:
“Basically the banks took overseas depositors money and paid Icelandic depositors – stealing from one to pay the other.”
====================================
You keep repeating the same nonsense, maybe in the forlorn hope that it makes more sense,
strange.
The only European banks afaia that are being sued for fraudalent trading (of sub prime “assets”) in the past few months
are Deutche Bank €85m , UBS €500m Barclays €450m
In civilised countries, any bank that accepts deposits assumes a fiduciary responsibility toward depositors. That is why, in the case of failure, depositors are always first to recover any available assets — ahead of stockholders, bondholders or any other holders of bank debt. Peter is absolutely correct that the Icelandic government moved to protect Icelandic depositors while disavowing responsibility for foreign depositors. The U.K. assets were seized when it became clear that the banks were NOT fulfilling their fiduciary responsibility toward their U.K. depositors. This is a punishable criminal offense in every country I am familiar with. Stealing? Peculation, for sure.
@Knowless, as for the general debt write-down, you can find it on page 16 of the IMF staff report (Page 18 of the PDF file) her:
http://sedlabanki.is/lisalib/getfile.aspx?itemid=6606
I don’t doubt that no individual Icelander has had a debt write down: when the pay their debts, these provisions will turn into profits for the banks’ sole shareholder (the Icelandic government) at the expense of the foreign creditors who supplied the vast majority of the original capital.
That is Viking rape and pillage, thankfully without the rape.
Physchim62 said:
As for who “stole” the life savings, it’s an odds-on bet between Polish builders and French champagne houses.
How did you ever come to this conclusion?
To Peter – London:
>>>>They haven’t/can’t give the depositors money back. So its been stolen.
>>>>Simple really.
No, it really is NOT that simple.
No bank in the world, could give the depositors their money back on such a short notice.
The depositor’s money was LOANED out to the bank customers all over world. Thats were the money ended up, no one stole it. Its all still there!
It will take years, even decades for these loans to be paid back, as you simply can’t call in those loans immediately, just because the originating bank went under.
To Peter – London:
>>>>However, As has been pointed out here before, Icelandic banks ensured domestic depositors had their deposits protected. Basically the banks took overseas depositors money and paid Icelandic depositors – stealing from one to pay the other.
Try not to make up facts…
No one actually had to pay out any money the Icelandic depositors! The Icelandic government was actually successful in making sure that this didn’t happen. Almost all the Icelandic depositors kept their money in the banks and its still there.
Remember, it is not the real purpose of any guarantee scheme to actually end up pay out to the depositors. The real purpose of having the scheme is to AVOID having to pay out the depositors. In fact NO typical western government would have the financial means to to pay out all the deposits in all their respective banks.
If an actual bank payout has to happen through a deposit guarantee scheme, this would represent a failure for the system. Everybody looses if that happens!
Therefore, most governments prefer either to have a larger bank take over the failing bank, or nationalize it. The Icelandic government, due to its small size compared to the banks, simply did not have those options available.
Peter (Germany) and Alex > According to Swedish newspaper Dagens Industri, at least the following nations recieved a thank you letter from Haarde today: Norway, Sweden, Denmark, Faroe Islands, Poland and Russia.
To Ivor,
>>>>Your analysis glosses over the role of the central bank, and it’s low foreign currency reserves, when in fact this is the crux of the problem. Iceland is not just another victim of the global financial crisis – that was just the spark that set things off. Disaster was inevitable sooner or later, because the future of both Iceland’s economy and foreigner’s savings was staked on a massive currency gamble.
I was not really glossing it over, I just though my post had already grown too long. :-)
I totally agree, the Central bank (ICB) completely failed in their role of protecting the ISK and keeping enough foreign currency reserves.
As they were not willing or able to fulfill this role, they should have taken one or more of the following steps to protect the Icelandic economy:
1. Forced the Icelandic banks to break up into domestic and foreign operations BEFORE the crisis.
2. Forced the banks to locate somewhere else in Europe.
3. Increased the capital requirements for the banks to force them to reduce lending.
4. Negotiate with the UK/Netherlands governments to place the banks within their respective guarantee schemes (there were already discussions since March 2008 on this with the UK government, that unfortunately went nowhere during the summer and fall).
Instead the ICB just added to the problem, by issuing massive amounts of “glacier” bonds in ISK, which became very popular for the “carry trade”. The unwinding of these bonds, is now one of the main problems Iceland has to deal with in stabilizing the ISK currency.
http://en.wikipedia.org/wiki/Fractional-reserve_banking
To Physchim62:
>>>>But the new banks have written down their Icelandic loan book by between 50 and 67 percent before they calculated how much they owed to their predecessors (ie, foreign creditors).
It will NOT be the new banks that determine actual final value of the Icelandic loan book. That will be up to the international appraisal company. See Items 11 and 12 in:
http://www.fme.is/lisalib/getfile.aspx?itemid=5725
This appraisal process is still ongoing and will not finish until early next year.
To Peter (Germany):
>>>>Just as a sidenote: The BayernLB which seemed to have played such an important part in the Icelandic bank crash is going to lose an enormous amount of money – not least because of its Icelandic investments. Today the state of Bavaria has announced that it is going to rescue the BayernLB with a cash injection of 10 bn Euros. And nobody knows whether Bavaria and its citizens will have to pay a lot more in the end…
Yes, its actually sad, compared to all the hoopla and shouting regarding the deposit guarantees for the UK/Dutch customers, the ones most likely to suffer the most amount of losses are actuallyl the German banks and their respective state governments and tax-payers. They will only be paid if there is anything left after the depositors have been paid.
To Terry:
>>>>This is not the problem for foreign savers. There is a perception that Icelandic authorities walked away from the problem – and did not face up to it until ‘squeezed’ by ‘realpolitik’ diplomacy on the part of UK, Germany, Netherlands, and EU.
I am not making any excuses for the Icelandic government and their performance. They did number of mistakes before and during the crash that we are now all paying dearly for.
After the crash had already happened, the Icelandic government didn’t really have any realistic good options left. It already knew it could NEVER pay for the deposit guarantee. In fact, the money for the UK/Dutch/German depositors is now being loaned by the their respective governments. We are all just hoping that the banks are indeed correct, that their assets are enough to cover all their liabilities. If not it will take Iceland decades to pay those loans back.
>>>>The Ireland government had the ‘balls’, in this crisis, to put its weight behind the banks – providing an unconditional national guarantee to depositors.
If there would be a run on ALL the banks in Ireland, the Irish government would stand no chance of covering this unconditional national guarantee. In fact, no typical western government would!
Lets just hope we never have to find this out again.
i was a depositer in icesave
the icelandic peoples have come across as criminals of the worst order…
i now have zero trust for the icelandic people, i regard this gene pool as liars cheats and terrorists.. i have nothing but hatred for you all!
>>>>Don´t you feel the Icelandic banks were engaged in fraud on a massive scale, Bjarni? How can you perceive these activities as legitimate?
>>>>Stim and Glitnir setting up shell companies to buy their own stock with loaned funds?
>>>>Glitnir and billions in poorly conceived loans to FL Group?
The whole episode of the Stim/Glitnir loans looks extremely “fishy” as the details slowly been coming out. For those that do not know the details, Glitnir apparently decided loan to another company Stim which it partially owned, so that the company could buy some of Glitnir’s own shares, which Glitnir already owned. One of the Icelandic newspapers put it best in their headline:
“Glitnir loans Glitnir to buy Glitnir and FL Group stock owned by Glitnir” :-)
I do not have English version of the news article but here it is the Icelandic:
http://www.visir.is/article/20081129/VIDSKIPTI06/333296199&SearchID=7333784993718
If what we think we now “know” did indeed happen, then in my view it should have been illegal and the responsible parties prosecuted!
>>>>Kaupthing and billions in loans to company officers forgiven after the stock they were attempting to prop up became worthless?
I would like to see the actual agreements that were signed before making my mind up on their actual legality. Your details and timing are a little bit off. Their loans were NOT forgiven, but rather in September, BEFORE the banks crashed, the bank board decided that any personal guarantees for the loans would be removed in turn for the staff not being allowed to sell their shares. It remains to be determined if this was indeed a legal decision. The staff as a group sent a letter few weeks ago to the administrators asking for this decision to be reversed.
The administrators have the right to reverse and nullify any agreement or decision that was done with a company in the immediate 6 months before it going bankrupt.
>>>>Landsbanki and false promises to Icesave depositors?
Landsbanki went into administration and all their assets were frozen. After this happened any promises made by Landsbanki become a claim on the company along with any other claims. It would be ILLEGAL for any company to pay out to any claimant while it is in administration.
To Physchim62:
>>>>@Bjarni, you numbered points are a good summary, although I must correct point 6: the first Icelandic bank to go into default was Glitnir, on 3 October.
I have not seen any references regarding default of Glitnir on October 3rd. If you have any please post them here.
On September 29th, The Icelandic central bank announced it was “buying” 75% of Glitnir for 600M Euros. This purchse was supposed to be finalized at a shareholder meeting on October 11th. On October 7th the government decided to withdraw the purchase offer, and instead used the emergency law powers to take Glitnir over:
http://www.fme.is/lisalib/getfile.aspx?itemid=5748
>>>>As for whether the Icelandic government stole anything, let’s not forget that it had very healthy tax incomes from the banks’ operations before they failed, which allowed Iceland to pay off all of its net foreign debt before the crisis struck.
I have absolutely no problems with governments taxing legimate profits and then using those tax payments to pay off foreign debts.
The Icelandic banks were very profitable, right to the end. They failed not because of any losses, but rather due to liquitidy/funding issues and a lack of trust regarding their lender-of-last-resort, the Icelandic government.
To suomi:
>>>>In civilised countries, any bank that accepts deposits assumes a fiduciary responsibility toward depositors. That is why, in the case of failure, depositors are always first to recover any available assets — ahead of stockholders, bondholders or any other holders of bank debt.
I totally agree with everything here.
>>>>Peter is absolutely correct that the Icelandic government moved to protect Icelandic depositors while disavowing responsibility for foreign depositors. The U.K. assets were seized when it became clear that the banks were NOT fulfilling their fiduciary responsibility toward their U.K. depositors.
On October 6th, when the emergency laws were passed (around midnight, so sometimes it is referred as on October 7th), the Icelandic government faced some very stark options:
a) Let all the Icelandic banks go bankrupt, resulting in the collapse of the whole Icelandic economy (no one would have been able to buy anything, sell anything, pay anything, etc.).
b) Try to save the domestic operations of the Icelandic banks by starting new banks operating only with Icelandic currency. This was based on the difficult and hard realization, that the ONLY way the foreign liabilities (deposits, loans) of the old banks could be covered, would be through their respective assets (customer loans). The Icelandic goverment simply was not big enough, to cover even part of those foreign liabilities and certainly did not have enough foreign currency reserves to do so.
The Icelandic government maintains that on October 6th, the only option that it had left was option b). As I mentioned before, it can be debated, whether other options were possible BEFORE the crash, but these would have then required cooperation and assistance from other European governments. At the time no such assistance was indeed available, even though it was requested by the Icelandic government.
>>>>This is a punishable criminal offense in every country I am familiar with. Stealing? Peculation, for sure.
If some real person or company actually stole any money or broke any other laws, I have no problems with them being prosecuted. And if those charges can be proven in court, they will be convicted. But, it is not a criminal offence by itself to go bankrupt, even for a bank or a country.
Just a little reminder. Mr. Hardee and to the Icelanders, to have loyal friends, do not crap on your neighbor’s backyard and your own backyard because you will stink. That sums it all. Thank you folks.
New funny word:
http://www.eyjan.is/silfuregils/
(see picture under heading “Land á hálfvirði”)
Jonas:
“According to Swedish newspaper Dagens Industri, at least the following nations recieved a thank you letter from Haarde today: Norway, Sweden, Denmark, Faroe Islands, Poland and Russia.”
Good. Lets hope he did not forget about Finland.
Bjarni writes:
“The Icelandic banks were very profitable, right to the end. They failed not because of any losses, but rather due to liquitidy/funding issues and a lack of trust regarding their lender-of-last-resort, the Icelandic government.”
This is typical of the Icelandic tendency to look at the wrong information. Here is a quick finance lecture:
Nearly every company in the world that goes bust was profitable until the very end – and even beyond the end. Profits are an ** opinion **. They are not real, they do not represent actual money. In other words, profits are totally and utterly fictional.
However, cash flow is real. The day a company has no money in the larder is the day the company goes bust. It can have all the profits in the world, and the accounts can show a huge reserve attributed to retained profits but none of that will pay the wages of the staff or the company’s creditors if it has no actual cash in hand.
The Icelandic banks were effectively bankrupt a long long time ago. In mid to late 2005 we estimated that Kaupthing would fold, the others slightly later. By 2006 this had become a certainty. They survived temporarily through two means. First by taking deposits to fill the holes in their balance sheets. Secondly by continuing to borrow from Peter to pay off Paul (rolling over their debt). But the debt just grew bigger and bigger. Kaupthing’s efforts were particularly desparate – they were reduced to issuing a private bond. This told everyone that the markets were shut to these banks. The crunch came when the depositors started to withdraw their money and simultaneously Peter said “No more”. It didn’t even need a fully fledged “run” on these banks since they were so fragile anyway. Just a few withdrwals were needed to knock the structure over.
Changing line slightly. The issue of the Emergency Act is the most contentious issue. From the domestic Icelandic side Bjarni states the line very well: “We needed a banking system”. The problem is that line doesn’t hold any water. It is pure rubbish.
Here is one example of many of a country without banks. In 1978 in the Republic of Ireland the banks were closed down due to a strike. The strike lasted six months. In that time a new financial system (ramshackle, unregulated and rather dangerous to be sure) emerged that functioned well given the circumstances. Personal IOUs and cheques replaced money. They were “accepted” as payment and came to form a sort of ad hoc currency. These financial instruments were passed from hand to hand, often using pubs as financial intermediaries (wouldn’t you just guess it). As in all financial systems the main issue was one of trust (a lesson which Iceland has yet to learn) and people were prepared to trust pub landlords. The landlords were a “fixed point”, they knew many people personally and could act as a trusted buffer between individuals who didn’t know each other. The system probably would have collapsed if it had gone on much longer but it was a fascinating case study in how a country can work without banks. If a country with a population of millions could pull off this trick there is absolutely no reason why the Icelandic authorities couldn’t have done it – officially and in a regulated manner – with just 300,000 people. Indeed Iceland still had some functioning banks and the authorities could have put in place an alternative system within days.
This would have crystallised the true situation for the average Icelander – it would have brought home the awful truth that the entire country was bankrupt. But the government chose not to do that in the vain hope that they can avoid that title.
So the three banks could have been declared bankrupt – because that is what they were and are – and yet a functioning finance system could have been put together in a few days. By giving preference to local depositors the Emergency Act knocked away any possible international support the Icelandic financial system might have had. As others have said the end effect of this is that Icelanders who still have money in the bank have achieved that effect by grabbing the money of international depositors and using the “ring fencing” provisions of the Act to refuse to pay it back.
Given that simple fact, Geir Haarde’s letter (which is the root of this thread) is the most disgusting thing anyone outside of Iceland has read about the country. It probably beats Davið’s TV rant. At least his rant was “from the heart”. This letter is just plain cynical. Others have put the general international view of the letter more colourfully than I would, but I agree with the essence of those views.
@Bjarni, the reference for the Glitnir default is here:
http://www.fme.is/?PageID=581&NewsID=357
Oh, by the way — you may wonder why more “friends” have not sprung to Iceland’s aid; well,in addition to the German bank woes, it now appears that Iceland’s bank debt to U.S. lenders exceeds assets by at least $14 billion, since Kaupthing alone, having now declared U.S. bankruptcy, owes that much. And you want friends? Get a grip, Icelanders. Your reputation is ruined.
Thank you to Bjarni for the really clear discussion, and for those taking part who are helping the discussion on the way. It has been hard to find a good, clear breakdown of these events in English.
I am a Scot (a Brit) living in Iceland. My family live in the UK and my close friends in Iceland and I moved my savings to ISK in Iceland earlier in the year when I decided to stay here long-term. There are many foreigners living here who are in the same boat as the Icelanders and who choose to stay here even in tough times, partly because this is a beautiful country of honest, kind, hard-working people.
I am sad to read the comments of people who are suffering hardship now and feel angry and upset. My experience from friends in Iceland is that people here also feel sympathy and sadness (and shame even though most people are in no way at fault) for the depositors who may have lost money in Icelandic banks abroad. Many people can understand too how this feels since many have lost their savings here also and face job losses or pay cuts and will ultimately have to help pay back these loans.
Please remember if you can in your distress when you use the words “Iceland” and “Icelanders” that the great majority of the Icelanders are not to blame for this crisis, that they had no role in any poor decision-making which may have lead to this and that people are grateful for the help received from all sources and countries.
Speaking of Glitnir again (and thanks Bjarni for the link, I’ll see if there’s a place for it on Wikipedia once I’ve battled through the translation), let’s not forget that it’s also the subject of a criminal complaint in Norway. It is alleged to have granted itself an unauthorised loan from the Norwegian government with its ‘Viking’ tactics…
http://www.aftenposten.no/english/local/article2727423.ece
As for taxes, the Icelandic government was taxing income over which it had no control. It didn’t seem to complain while the money was rolling in. Had Kaupthing moved its headquarters overseas, as it was supposed planning to do, the IS government’s tax income would have taken a big hit. Now a government should know even better than the average citizen that there’s no such thing as a free lunch…
The Icelandic government took the money while the going was good, and then dropped the country in the **** when the bubble burst. Luckily, it actually used the “easy” money to pay off State debts: even after the crisis, the Icelandic State will be no more indebted (as a proportion of GDP) than, say, Belgium. You wouldn’t believe it to hear the hysterical comments of Doddsson or Geir Haarde!
A typo creeped in there. The Irish banks strike was in 1970.
Very good debate,
Again thank you for the quality intervention of Bjarni.
From what I read through the forum:
>>> “When your bank goes bankrupt, you lose your money. It is a tough rule of capitalism”
***Actually is not. It might be like that in the States but back to Europe it’s not.
That only depends from our Governments. Taking risky measure, going along with capitalist influences, backing corrupted companies …
The role of the government is not only looking into prosperity, but actually protects citizens.
>>> “Europe had become quite worried about how large the Icelandic banks had become (8x – 15x time GDP, depending on how you count it.”
***The real question here is why it becomes to that? Why the government didn’t react back in 2003, when Lansdbanki were already getting flagged? And yet the Central Bank gave green light to the “Icescam” in UK. Otherwise, without the clear guarantees between Central Banks, dubious investments never will take place.
It is being known, and slowly facts are coming up, that Iceland was an offshore financial trampoline to Isle of Man and Guernsey and some today’s controversial Banks like RBS, Clydesdale Bank, and others… (Which by the way they all had a weird connection to Bruce Crawford and John Swinney with Glitnir and afiliates to Jón Asgeirs).
>>> “The Icelandic government, which was faced with immediate collapse of the banking system, used their emergency powers to avoid bankrupting the whole Icelandic economy.
No bank in the world, could give the depositors their money back on such a short notice.”
***Actually if Iceland government will have stronger rules (or being in the UE) about banking business and debts the “geysergate” will had never come to the current situation. Notice that under UE rules you have to respect strict public debts rules and provide deposit guarantee for individuals of at least € 50 000, going to 100.000, and the disbursement time in case the bank goes bankrupt will be 3 days instead of 3 months. That said, the banks (or governments, in the case of UK) have to respect certain solvency rules.
>>> “Try not to make up facts…
No one actually had to pay out any money the Icelandic depositors! The Icelandic government was actually successful in making sure that this didn’t happen. Almost all the Icelandic depositors kept their money in the banks and its still there.”
>>> This is a very interesting comment.
On the 2nd October I had the following mail from a bank in Iceland: “Your money is safe, because we have fund that pays every one if the bank goes bankrupt at minimum 20.000€”. At that time movements within Iceland where done with no problems. But the transfers where already cautiously monitored and if they still have their money in the banks, is only because they couldn’t other wise or under 20.000 euro. Not talking about the thousands of people who lost a great amount of money with Glitnir shares.
Physchim62 said:
“@Knowless, you (perhaps unwittingly) hit the nail on the head. Why were these banks Icelandic at all? Most of their business was overseas, yet they were based in Iceland and paid taxes to the Icelandic government – and were supposed to be regulated by the FME and Doddsson’s crowd.”
====================================================
It would be entirely the UK’s responsibility if they allow subsidiaries an exemption from paying tax on profits to the UK Gov.
That would be saying to the subsidiary, we will take the employment /expertise you offer and only reap the dividends from having a workforce in employment, paying direct / indirect taxation and contributions. Were the UK Gov so desperate for those tax revenues?
Plus the small print ….we won’t regulate you properly even if we clearly see things are not okay and that nothing is being done to rectify we will still believe empty promises that everything will be alright.
Furthermore even smaller print, it if the doo doo hits the fan the UK taxpayer will have to pick up a lot of the pieces (just as they had to do with RBS B&B NR)
A subsidiary goes bankrupt and people turn it into a racial slur against the Icelandic people or walk very close on that wire.
“According to Swedish newspaper Dagens Industri, at least the following nations recieved a thank you letter from Haarde today: Norway, Sweden, Denmark, Faroe Islands, Poland and Russia.”
What about the UK, Holland and Germany that have loaned billions of Euro’s to Iceland, plus the other Billions that depositors have lost in Guernsey, Isle of Man and all over Europe?
Why not thank the people who have donated money to Iceland WITHOUT BEING ASKED and without ANY chance of have the ‘loan’ returned.
(Apparently this isn’t stealing in Icelanders eyes)
Orchafine, I understand that bank deposits in the U.S. are Federally insured to $200,000.00 per account or $400,000.00 if a joint account.
Kate, the magnitude of the Icelandic disaster inflicted upon foreigners is only beginning to become known. With $15 billion lost to one German bank, at least $14 billion only for Kaupthing’s debts in the U.S. (Glitnir has now also declared U.S. bankruptcy)and $ billions more to depositors, plus the as yet unpublicised $ billions, a billion here and there amounts to real money. I will be EXTREMELY surprised if total Icelandic debt is less than $100 billion world-wide. I fear Icelanders will have to trade their SUV’s for electric cars, because gasoline, and many other essentials, will be subject to rationing, either directly or through price rises. The Icelandic government’s assertions that all will be well in a couple of years are absurd. A country with a GNP of $12 billion in its most prosperous years will not pay off these debts so soon, so maybe a denunciation of debt — otherwise known as national bankruptcy — is the only way out.
To Mike:
I read your earlier post in an earlier thread which I thought was enlightening. Few comments on your response here:
>>>>Nearly every company in the world that goes bust was profitable until the very end – and even beyond the end. Profits are an ** opinion **. They are not real, they do not represent actual money. In other words, profits are totally and utterly fictional.
I agree with the first part and that profits can be manupilated up to a certain point. But ending with the last part that “profits are totally and utterly fictional” I do NOT agree with.
The profits (or losses) for most banks come mainly from three different sources: Interest income, Fee income, and finance income. The Icelandic banks received most of their profits from Interest income (charging higher interest than paid out), also considerable fee income (services), and like most other banks today, they were loosing money on the finance side (investments).
The reason they were still profitable at the end, was that their Interest/fee income was much, much higher than the losses on the finance side. When you say that those profits were “fictional”, you must be saying that somehow the interest income and the fee income was not “real”. Please explain.
>>>>The Icelandic banks were effectively bankrupt a long long time ago. In mid to late 2005 we estimated that Kaupthing would fold, the others slightly later. By 2006 this had become a certainty. They survived temporarily through two means. First by taking deposits to fill the holes in their balance sheets. Secondly by continuing to borrow from Peter to pay off Paul (rolling over their debt). But the debt just grew bigger and bigger. Kaupthing’s efforts were particularly desparate – they were reduced to issuing a private bond. This told everyone that the markets were shut to these banks. The crunch came when the depositors started to withdraw their money and simultaneously Peter said “No more”. It didn’t even need a fully fledged “run” on these banks since they were so fragile anyway. Just a few withdrwals were needed to knock the structure over.
This paragraph could also easily be true also for banks today in almost all western countries. Some banks have trouble on their asset side (toxic debt, etc.), while some have trouble on the liability side (credit crisis, funding, etc.).
There are now massive bailout plans being implemented in many countries, which we still have no certainty that they are going to work. The main difference is that Iceland was the smallest country and the “newest” kid on the block.
Iceland simply had no resources to bail any of their banks out, which directly lead to the lack of confidence and trust in the banks themselves (independent of whether they were profitable or not).
>>>>Changing line slightly. The issue of the Emergency Act is the most contentious issue. From the domestic Icelandic side Bjarni states the line very well: “We needed a banking system”. The problem is that line doesn’t hold any water. It is pure rubbish. (also following paragraph about irish pubs functioning as a temporary banking system).
I am sure we would have figured out to survive without a banking system in the end somehow, but there is a big difference between a temporary strike and actually bankrupting all the banks. The damage would have been enormous and very possibly permanent. There was no way the Icelandic government would have been willing to take any chances on this.
>>>>This would have crystallised the true situation for the average Icelander – it would have brought home the awful truth that the entire country was bankrupt. But the government chose not to do that in the vain hope that they can avoid that title.
We already know all too well that we went “bankrupt”. What is going on now is basically an emergency rescue operation with the help of the IMF and other countries to try to make sure it will not be a permanent bankruptcy.
>>>>Given that simple fact, Geir Haarde’s letter (which is the root of this thread) is the most disgusting thing anyone outside of Iceland has read about the country. It probably beats Davið’s TV rant. At least his rant was “from the heart”. This letter is just plain cynical. Others have put the general international view of the letter more colourfully than I would, but I agree with the essence of those views.
I think I can speak for most Icelanders, at least for the ones that I know, that we are all extremely grateful to the countries that came to our assistance, during this crisis. Here is a good example:
http://faroe.auglysing.is/
“Icelanders remember acts of friendship”
- yeah idiot, and the rest of the world remembers acts of ‘theft’ i.e. that which you have committed against many innocent savers. That’s not ‘whingeing’, it’s a desperate fact for many people.
Iceland should be excluded from the world of international banking for the foreseeable future – just as an irresponsible child has to stay in at play-time.
To orchafine:
>>>>On the 2nd October I had the following mail from a bank in Iceland: “Your money is safe, because we have fund that pays every one if the bank goes bankrupt at minimum 20.000€”. At that time movements within Iceland where done with no problems.
Please do not believe ANYONE that tells you your savings are 100% SAFE. EVER!
There are NO methods of savings that are 100% safe.
When you deposit or invest your money somewhere, you are ALWAYS taking some kind of risk. It can be risk of loss, risk of wrong/bad information, risk of mistakes, risk of fraud, risk of bankruptcy, risk of banks, risk of currency, and yes, as we are now finding out, risk of a whole country financial systems collapsing. In the end your decision should come down to figuring out for yourself by doing your own research, the level of risk you are willing to take.
There are also NO guarantee deposit schemes that are 100% safe!
Many people seem to believe they do not have to or should not have to worry too much about what bank they choose, since “their” bank is guaranteed by a deposit scheme. Nothing could be further from the truth!
To realize why, you just need to step back and think for a minute what a bank deposit guarantee scheme really is.
The bank takes your money (deposits) and loans it out for longer time at a higher interest rate. The bank is required to keep certain amount in reserve, but this is typically only a fraction of the total deposits. If too many people want to withdraw their money too quickly (panic), you have a bank run and everybody looses.
Therefore governments around the world have implemented different guarantee schemes, that typically are funded by the banks themselves. The funds available in those schemes are NEVER enough to pay for ALL the deposits, but it creates the image of safety and can help avoid panic.
In many countries, governments have decided to supplement the guarantees, by promising additional funding from the treasury if needed. This is again done to help make sure depositors do not panic and withdraw their money.
But, and this is the key point to realize, NO government has enough money available to pay out all the depositors in all the banks. They are simply not big enough!
The whole system only works, if we all believe it works.
If anyone wants to read more about deposit guarantee schemes, there is an excellent handbook on the subject from Bank of England here:
http://www.bankofengland.co.uk/education/ccbs/handbooks/pdf/ccbshb09.pdf
I especially recommend reading the parts about “moral hazard”, and why guarantee schemes can sometimes create their own problems.
Bjarni, it is, of course, not only a fictional guarantee. In Germany every thirty years or so it happens that a small bank goes bankrupt – and then the savings guarantee actually works. For example, a couple of weeks ago the Weserbank went bankrupt, largely because of its exposure to the US market. The domestic guarantee did work then, and there was never a question that it would work. I suppose in the larger European countries it would even work if a really large bank like Deutsche Bank or even ING had to close its doors.
The difference from countries like France, Spain, the Netherlands or Germany on the one side and Iceland on the other is, as you of course know better than I, that the Icelandic banks had become so huge compared to the size of the country that a failure of one single bank only would suffice to cause the collapse of the whole system. I suppose, it is the big failure of the financial policies of the past years that neither the Central Bank nor the government had done something effective against this supersizing of the Icelandic banks.
Just a sidenote: With hindsight it’s rather ironic that the EU should have complained about the German banking system with three independent pillars and the strong saving and co-operative bank sector over here.
Good find Bjarni! At last, a readable description of the subject. I note that it was written by Ronald MacDonald, presumably the same person who invented the “Big Mac Index”:
http://en.wikipedia.org/wiki/Big_Mac_Index
which had the króna as the most overvalued currency in the world in 2007.
The Irish government guarantee of €400bn is pure fiction. They are probably the closest you can get to Iceland.
The Gov Guarantee is based on don’t let the savers panic withdraw when one bank collapses.
Stopping the savers panic is just one small part of the equation.
The UK tax coffers lost £2.5bn overnight, bailing out the bad debts of RBS.
It took about 3 years for the crash of 1929 to bottom out. There are going to be many more banks needing to be bailed out. Pension schemes are getting eroded.
I wonder how Iceland would have managed without all the foreign banking nightmare. It would feel positively glowing just to facing a severe recession but we wouldn’t know how fortunate we were.
To Peter (Germany):
>>>>I suppose in the larger European countries it would even work if a really large bank like Deutsche Bank or even ING had to close its doors.
In my comments, I was actually referring to paying out to ALL the depositors in ALL the bank, but even if you take just the largest bank in each country the numbers are in my view just still too high.
From their 2007 annual reports, the Deutche Bank had about 450B Euros and ING about 525B Euros in customer deposits.
Even a large financially strong country such as Germany with GDP around 2000B Euros, would have some very serious difficulties coming up with the whole 450B Euros to pay out to the Deutche Bank depositors.
The Netherlands with their much smaller GDP around 400B Euros, would in my view have no chance of paying out 525B Euros to the ING depositors.
To Physchim62:
>>>>Good find Bjarni! At last, a readable description of the subject. I note that it was written by Ronald MacDonald, presumably the same person who invented the “Big Mac Index”:
http://en.wikipedia.org/wiki/Big_Mac_Index
which had the króna as the most overvalued currency in the world in 2007.
Now that the ISK/USD has gone from 80 (July 2008) to around 150, we should be in much better place on the list.
Probably now the cheapest MacDonalds you can get in Europe! :-)
Bjarni, I am sorry, but I am afraid I cannot quite follow your line here. The bottom line of what you are saying seems to be that there is no real difference between a Dutch bank like ING or a German bank like Deutsche and e.g. Glitnir. There is, and to me it seems to be an enormous difference. Not only in size, but more importantly in terms of being able to get support by its home country.
Sure, no one is entirely and absolutely secure. Not the Dutch, not the Germans, neither the Brits. In case all the co-operative or saving banks went bankrupt over here the German government would find herself in a very uncomfortable situation. (In Germany, the saving banks are far more important than Deutsche Bank.) But that is not the point as the guarantee was designed to work for banks with a proper regulatory environment. I suppose I would argue that this is what Iceland lacked when everything exploded in October.
BTW: As you certainly know ING did get substantial support by the Dutch government a couple of weeks ago. Even the state of Berlin was able to support the Berlin Landesbank a couple of years ago even though Berlin was indeed quite close to bankruptcy afterwards.
To Peter (Germany):
>>>>Bjarni, I am sorry, but I am afraid I cannot quite follow your line here. The bottom line of what you are saying seems to be that there is no real difference between a Dutch bank like ING or a German bank like Deutsche and e.g. Glitnir. There is, and to me it seems to be an enormous difference. Not only in size, but more importantly in terms of being able to get support by its home country.
What I was trying to point out, is that if a largest bank in any European country failed, and the deposit guarantee scheme would be require payment to ALL depositors, then in my view certainly no guarantee fund could really cope with this, and probably no country either. The amounts that are deposited in each country compared to their GDP are simply too high!
Yet, this is exactly what was demanded of Iceland by UK and the Netherlands. And when we try to tell people there was simply no way we could, we were called thieves and criminals.
>>>>Sure, no one is entirely and absolutely secure. Not the Dutch, not the Germans, neither the Brits. In case all the co-operative or saving banks went bankrupt over here the German government would find herself in a very uncomfortable situation. (In Germany, the saving banks are far more important than Deutsche Bank.) But that is not the point as the guarantee was designed to work for banks with a proper regulatory environment. I suppose I would argue that this is what Iceland lacked when everything exploded in October.
The Germans are known as one of the biggest savers in the world, so I am not surprised that most of the money is deposited in savings banks (which are hopefully very safe!).
I think the main point regarding the Icelandic banks, was that they really thought of themselves as EUROPEAN (only about 20-30% of their operations were actually in Iceland), while everyone outside Iceland still thought of them as Icelandic.
As I mentioned in one of the posts above, it can be easily argued that the finance authorities in Iceland should have either limited the external growth of the banks or forced them to move their foreign operations out of Iceland, to protect the Icelandic economy.
In the end the Icelandic banks failed, not because they were loosing money (as many banks are today), but rather because foreign banks and governments, had lost their faith in the ability of the Icelandic government to back them up.
>>>>BTW: As you certainly know ING did get substantial support by the Dutch government a couple of weeks ago. Even the state of Berlin was able to support the Berlin Landesbank a couple of years ago even though Berlin was indeed quite close to bankruptcy afterwards.
Yes, but there is BIG difference between supporting a bank (with loans, bailouts, overtaking, nationalization, etc.), versus actually bankrupting the bank and forcing the deposit guarantee scheme (and/or the respecive government) to pick up the tab. My point was, unless the failing bank is relatively small compared to the homebase country or state, every government wants to AVOID AT ALL COSTS to actually have to pay out the depositors.
In case of Iceland, the question was not made by Icelandic government alone (except for the first bank Glitnir – a colossal mistake). Instead it was the UK government that forced Landsbanki and Kaupthing into bankruptcy with their freezing action. There does not seem to have been any thought beforehand to what the concequences would be.
It was only afterwards the UK and everyone else figured out (by then too late) that Iceland simply had no realistic means to back up the banks or the deposit guarantee scheme. Yes, in the end Iceland was forced to accept the responsibility for the first 20K of about 500000 depositors (totalling about 5-6B dollars), but everyone knows if it comes to that, it will take Iceland at least several decades to pay it back. Most of the real cost of the Icelandic bank crash (20-50B) will therefore unfortunately have to be bourne by people, banks, and governments in all the countries involved. Everybody lost here!
People look at the guarantee schemes and say to themselves: “good, now my money is safe”
My final point is, if the bank is too large, its only safe if it stays in the bank!