Reprinted from Business Times
10 Oct 2008, Global Financial Crisis have cost Iceland's dalliance with high finance is pushing tiny Nordic nation to the brink bankruptcy.
(REYKJAVIK, Iceland) Iceland suspended trading on its stock exchange for two days and took control of the country's largest bank as it grappled with a banking crisis that is treatening to bankrupt the country.
The government's decision to take control of Kaupthing, the country's leading bank that has assets and debts across Europe, means that the country's Financial Services Authority now has control of all three of the country's major banks. The other two, Landsbanki and Glitnir, are in receivership.
The crisis is having a ripple effect throughout the continent, where tens of thousands of people have accounts with subsidiaries of the Icelandic banks. More than 20 British local government authorities as well as some universities also have hundreds of millions of dollars deposited in Icelandic banks because of their relatively higher interest rates.
The main opposition Conservative Party estimated that councils across the United Kingdom may have had as much as £1 billion (S$2.53 billion) saved with Icelandic banks.
Iceland is struggling to get a grip on the collapse of its top-heavy banking system, a situation that Prime Minister Geir Haarde has warned is putting Iceland at risk of 'national bankruptcy'.
The Financial Supervisory Authority said on Wednesday that it took control of Glitnir Bank, the country's third-largest lender, annulling a previous move by the government to buy a 75 per cent stake in the bank. A day earlier the watchdog seized Landsbanki Islands amidst concern the second-biggest bank may default.
Kaupthing, Landsbanki and Glitnir make up about three quarters of the benchmark ICEX 15 Index.
The index has decreased 52 per cent so far this year 2008, making it the third-worst performer among 88 indexes worldwide tracked by Bloomberg. Kaupthing has declined 26 per cent this year while Glitnir has plunged 82 per cent. Landsbanki has lost 43 per cent of its market value.
The banks are saddled with about US$61 billion of debt, 12 times the size of the economy, according to data compiled by Bloomberg. Mr Haarde said on Wednesday 8 October 2008, that the banking sector had 'become too big' as he acknowledged that it will take the tiny Nordic nation of just 320,000 people several years to recover from the current crisis.
The government is seeking a loan from Russia and may ask for aid from the International Monetary Fund to help guarantee deposits.
The authority said that the action was necessary to ensure the 'continued orderly operation of domestic banking and the safety of domestic deposits'.
It also used emergency powers, rushed in by parliament earlier this week, to hive off most of the domestic assets of Landsbanki into a separate entity to be called 'New Landsbanki' that is fully owned by the government.
'The decision means that the new bank takes over all the bank's deposits in Iceland, and also the bulk of the bank's assets that relate to its Icelandic operations, such as loans and other claims,' it said. 'The decision ensures continued banking operations for Icelandic families and businesses,' it added.
In an attempt to curb any panic, the regulator stressed that both Kaupthing and Landsbanki were open for business as usual yesterday and that all domestic deposits of the bank were guaranteed under Icelandic law.
However, the move leaves the international operations of Landsbanki, which have already caused a diplomatic spat with Britain, open to question.
British Prime Minister Gordon Brown has threatened to sue Iceland to recover the lost deposits of some 300,000 Britons who hold accounts with IceSave, the online arm of Landsbanki.
With local governments also holding accounts worth tens of millions of pounds in Icelandic banks, the British government has used powers under terrorism laws to freeze Landsbanki's assets until the status of the deposits is resolved. Mr Haarde said on Wednesday that discussions between the two countries had begun to find a 'mutually satisfactory solution'.
10 Oct 2008, Global Financial Crisis have cost Iceland's dalliance with high finance is pushing tiny Nordic nation to the brink bankruptcy.
(REYKJAVIK, Iceland) Iceland suspended trading on its stock exchange for two days and took control of the country's largest bank as it grappled with a banking crisis that is treatening to bankrupt the country.
The government's decision to take control of Kaupthing, the country's leading bank that has assets and debts across Europe, means that the country's Financial Services Authority now has control of all three of the country's major banks. The other two, Landsbanki and Glitnir, are in receivership.
The crisis is having a ripple effect throughout the continent, where tens of thousands of people have accounts with subsidiaries of the Icelandic banks. More than 20 British local government authorities as well as some universities also have hundreds of millions of dollars deposited in Icelandic banks because of their relatively higher interest rates.
The main opposition Conservative Party estimated that councils across the United Kingdom may have had as much as £1 billion (S$2.53 billion) saved with Icelandic banks.
Iceland is struggling to get a grip on the collapse of its top-heavy banking system, a situation that Prime Minister Geir Haarde has warned is putting Iceland at risk of 'national bankruptcy'.
The Financial Supervisory Authority said on Wednesday that it took control of Glitnir Bank, the country's third-largest lender, annulling a previous move by the government to buy a 75 per cent stake in the bank. A day earlier the watchdog seized Landsbanki Islands amidst concern the second-biggest bank may default.
Kaupthing, Landsbanki and Glitnir make up about three quarters of the benchmark ICEX 15 Index.
The index has decreased 52 per cent so far this year 2008, making it the third-worst performer among 88 indexes worldwide tracked by Bloomberg. Kaupthing has declined 26 per cent this year while Glitnir has plunged 82 per cent. Landsbanki has lost 43 per cent of its market value.
The banks are saddled with about US$61 billion of debt, 12 times the size of the economy, according to data compiled by Bloomberg. Mr Haarde said on Wednesday 8 October 2008, that the banking sector had 'become too big' as he acknowledged that it will take the tiny Nordic nation of just 320,000 people several years to recover from the current crisis.
The government is seeking a loan from Russia and may ask for aid from the International Monetary Fund to help guarantee deposits.
The authority said that the action was necessary to ensure the 'continued orderly operation of domestic banking and the safety of domestic deposits'.
It also used emergency powers, rushed in by parliament earlier this week, to hive off most of the domestic assets of Landsbanki into a separate entity to be called 'New Landsbanki' that is fully owned by the government.
'The decision means that the new bank takes over all the bank's deposits in Iceland, and also the bulk of the bank's assets that relate to its Icelandic operations, such as loans and other claims,' it said. 'The decision ensures continued banking operations for Icelandic families and businesses,' it added.
In an attempt to curb any panic, the regulator stressed that both Kaupthing and Landsbanki were open for business as usual yesterday and that all domestic deposits of the bank were guaranteed under Icelandic law.
However, the move leaves the international operations of Landsbanki, which have already caused a diplomatic spat with Britain, open to question.
British Prime Minister Gordon Brown has threatened to sue Iceland to recover the lost deposits of some 300,000 Britons who hold accounts with IceSave, the online arm of Landsbanki.
With local governments also holding accounts worth tens of millions of pounds in Icelandic banks, the British government has used powers under terrorism laws to freeze Landsbanki's assets until the status of the deposits is resolved. Mr Haarde said on Wednesday that discussions between the two countries had begun to find a 'mutually satisfactory solution'.
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