Short trading by the banks against the Icelandic krona amounted to around ISK 1,000 billion (USD 7.93 billion at today’s rate) right before the banking collapse in 2008, according to economist Bjarni Kristjansson.
Kristjansson’s report states that a large chunk of the Icelandic banks’ profits in the 12 months preceding their nationalisation came from their shorting the Icelandic krona – an action which was directly hostile and unhelpful towards the Icelandic state and its people. The banks systematically bought currency in large amounts to improve the appearance of their interim financial reports; an action Kristjansson says should be investigated. He points the finger at Kaupthing for engaging in the practice most of all. 60-82 percent of the krona’s precipitous fall can be blamed squarely on the currency trading activities of the Icelandic banks leading up to their demise, the author states.
As an example, Kristjansson says that 42 percent of Kaupthing currency trade in a three-month period came in the final five days, a proportion which should have been just eight percent. The resultant manipulation of the krona’s exchange rate could be seen as market manipulation, but was technically legal and carried out with the blessing of the Central Bank of Iceland’s politically-appointed leaders at the time, RUV reports.