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Bank boom bust in Iceland

15 April 2010

Government and regulators in Iceland allowed the country’s banks to grow too big, too fast, paving the way for a financial meltdown, according to an official inquiry.

The Special Investigation Commission  released its report earlier this week. In more than 2,000 pages it paints a picture of reckless expansion in Iceland’s  financial sector. It states that Iceland’s three main banks grew 20-fold in just seven years, a pace that “was not compatible with long-term interests of a strong bank”.

The report heavily criticises regulators and government, accusing them of “extreme negligence”, reports the Financial Times , while regulators were “in general understaffed and lacked experience”, adds the BBC .

But it also contains more than a suggestion of wrongdoing in the banks themselves: “According to all the loan-books from the banks, all the former owners of the three banks had inappropriate loans from the banks,” Sigridur Benediktsdottir, a member of the commission, told the FT.

Iceland wasn’t the only country whose financial sector ran into trouble. Many have wondered if the banks were “unlucky” – could they have avoided collapse if the financial crisis hadn’t hit? The report says no. In a “post mortem” annex , Mark Flannery of the University of Florida comments that the “sub-prime financial crisis surely added pressure on the banks … However, the banks had ignored repeated warnings that their size and rapid expansion exposed them to great risks. It seems likely that they would have come to grief eventually, even without a worldwide financial crisis.”

Useful links

Iceland  at the OECD

OECD Economic Survey of Iceland

Iceland notes from the OECD Economic Outlook (2009)

OECD Insights: From Crisis to Recovery

2 Responses leave one →
  1. April 16, 2010

    Iceland is a particularly interesting case because the banks grew to be extremely large relative to the country’s GDP.

    Meanwhile, American banks would like to become bigger…

    We need more countries to reach the “big can be dangerous” conclusion. Otherwise, the investment capital will only shift to countries with more relaxed regulations…

    song currently stuck in my head: “afro blue” – dianne reeves

  2. Courtney permalink
    February 3, 2012

    Global Debt Crisis

    The greatest private fraud of human history.
    Who are the great fraudsters who are becoming the murderers of the human kind? How does the economy “illness” threaten Democracy and the freedom of people?
    By knowing what happened in indebted Greece, where loan sharks created “bubbles” and the current inhuman debt, one can understand the inhuman plan in total …understand where this plan started just to bring all states at the same end …understand how this type of plans are established…


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