Skip to main content
SpringerLink
Log in

The Icelandic Regulatory Responses to the Financial Crisis

  • Articles
  • Published:
European Business Organization Law Review Aims and scope Submit manuscript

Abstract

Iceland was hit hard by the financial crisis in 2008, especially by the spill-over effects of its banking failure when all of its three major banks collapsed. This article examines the Icelandic regulatory response to the crisis. The Icelandic case is special as the banks were not only too big to fail but also too big to rescue. Thus, legislation dealt with the failure of the banks and the aftermath of the crisis. First, the most important legislation was the Emergency Act that provided the Financial Supervisory Authority (FME) with emergency authority over banks in danger of becoming insolvent. The role of banks is integral to any economy. In order to ensure normal banking services and the safety of deposits in Iceland, three new banks fully owned by the Icelandic government were established on the basis of the Emergency Act. The most controversial provision of the Emergency Act granted depositors’ claims priority over other unsecured claims in the winding up of the collapsed banks. Now the EFTA Surveillance Authority has concluded that this did not constitute a breach of the EEA Agreement. The Emergency Act made necessary amendments to the Act on Financial Undertakings concerning the reorganisation and winding up of financial undertakings. Second, a Special Investigation Commission was established by law. To enable a search for the truth, the legislation was far-reaching. The primary role of the Commission was to seek the truth. The report of the Commission discloses information that otherwise would not have been disclosed because of bank secrecy laws and sheds a unique light on the practices of the banks. Third, it was considered important that the law would be enforced by all necessary means. Thus, the temporary position of Special Prosecutor was established by law. Fourth, cross-border banking in the EU/EEA is examined in the light of the so-called Icesave dispute between Iceland on the one hand and the UK and the Netherlands on the other. It sheds a light on some of the major flaws of cross-border banking in the EU/EEA already known and criticised long before the crisis. When the Icelandic banks collapsed, the government of Iceland declared that all deposits in domestic banks and branches were guaranteed but not those in foreign branches. This gave rise to the question of whether Iceland could be held liable on the basis of the EU Deposit Guarantee Directive or because of discrimination of depositors based on nationality. In any case, the financial crisis has shown that there is a gap between law and reality. The conclusion of this article is that it is questionable whether the potential economic benefits of full integration in the field of cross-border banking outweigh the dangers and risks that come with it. If not, the price of full integration may be too high.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  1. The European Economic Area (EEA) was established in 1994, following an agreement between the member states of the European Free Trade Association (EFTA) and the European Community (later EU). The EEA extends the single market (free movement of goods, capital, services and persons) to Iceland, Norway and Liechtenstein, except in the field of agriculture and fisheries. On the historical background to the EEA Agreement, see Sven Norberg, Karin Hökborg, Martin Johannsson, Dan Eliasson and Lucien Dedichen, EEA Law — A Commentary on the EEA Agreement (Stockholm, Fritzes 1993), at p. 33 et seq.

    Google Scholar 

  2. Aðdragandi og orsakir falls íslensku bankanna 2008 og tengdir atburðir [Events Leading to, and the Causes of, the Downfall of the Icelandic Banks 2008, and Related Events] (SIC Report), Chapter 1, Volume 1, p. 31 (p. 1 in English version).

  3. Ibid., p. 31 (p. 1 in English version).

  4. Ibid., p. 46 (p. 17 in English version).

  5. See Art. 1, para. 2, of Act No. 125/2008 (Emergency Act). Unusual circumstances also include, for instance, situations where a financial undertaking has requested or has been granted a moratorium on payments or composition of creditors or has applied for insolvency proceedings or has been declared bankrupt.

  6. See Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions. The relevant rules of the Directive were implemented into Chapter XII of the Financial Undertakings Act by Act No. 130/2004, amending the Financial Undertakings Act, which took effect on 1 January 2005.

  7. See Art. 99, para. 1, and Art. 100, para. 2.

  8. See Art. 99, para. 2.

  9. See Art. 100(a), para. 3.

  10. Ibid., para. 9.

  11. Ibid., para. 4. On the basis of this provision, the FME appointed resolution committees for the collapsed banks Glitnir and Landsbanki on 7 October 2008, and for the Kaupthing bank on 9 October 2008.

  12. However, there are many important differences between resolution committees and authorities and many decisions made by the committees do not fall within the scope of the Administrative Act. See Margrét Vala Kristjánsdóttir, ‘Neyðarlögin og stjórnsýsluréttur’, Stjórnmál og stjórnsýsla [‘The Emergency Act and Administrative Law’], Politics and Administration, 2nd issue (2009) p. 267.

  13. Provisions of the Emergency Act other than the draft provision which became Article 100(a) of the Financial Undertakings Act were mostly drafted on 4–6 October 2008, under enormous time constraints. Many of those provisions were extremely complex and wide-ranging in scope. See SIC Report, Chapter 2, p. 43.

  14. Parliamentary Record 2008–2009, A-section, p. 3765.

  15. Parliamentary Record 2008–2009, A-section, p. 3764.

  16. See Act No. 129/2008 amending Financial Undertakings Act No. 161/2002, with subsequent amendments.

  17. See Art. 1 of the November 2008 Amendment (Art. 9, para. 3, of the Financial Undertakings Act). This amendment was in line with Art. 12 of Directive 2000/12/EC relating to the taking up and pursuit of the business of credit institutions.

  18. See Art. 2, para. 1, of the November 2008 Amendment.

  19. Ibid., Art. 2, para. 2.

  20. Ibid., Art. 2, para. 3.

  21. Ibid., Art. 2, para. 4. This provision was criticised in a minority opinion of the Parliament’s Trade Committee as depriving individuals and legal entities of their constitutional right to legal proceedings. See Parliamentary Record 2008–2009, A-section, p. 961.

  22. See Art. 4 of the November 2008 Amendment.

  23. Ibid., Art. 3.

  24. See Art. 100(a), para. 2.

  25. It does, however, not end if: (1) the board has already submitted a request for the winding up of the undertaking; in such case, its mandate remains in force until a final decision on the request has been reached; (2) the undertaking has been granted a debt moratorium or authorisation to seek composition with creditors; in such case, the mandate of the board remains in force until one month after the expiry of such authorisation; or (3) the board has previously held, with the approval of the FME, a shareholders’ meeting or meeting of guarantee capital owners and a new board of directors has been elected to replace the provisional board of directors. See Art. 100(a), para. 3.

  26. See Art. 100(a), para. 4.

  27. Parliamentary Record 2008–2009, A-section, p. 3767.

  28. Ibid.

  29. See Art. 101, para. 2, point 4.

  30. Parliamentary Record 2008–2009, A-section, p. 3768.

  31. According to Art. 72, para. 1, of the Constitution, ‘[t]he right of private ownership shall be inviolate. No one may be obliged to surrender his property unless required by public interests. Such a measure shall be provided for by law, and full compensation shall be paid’. Accordingly, legislation has recognised shares in a bank to be protected by this principle. See, e.g., Act No. 34/1957 on Utvegsbanki Islands h/f. The large majority of the shares of a bank were state-owned and the minority of shares privately owned. On the basis of this law, the government expropriated privately owned shares and the shareholders were paid the fair value for their shares, determined by a committee appointed by the Supreme Court. Moreover, it should be noted that a shareholder’s ownership interest in a company’s capital stock has been recognised as protected ‘possessions’, and is thus a property right under Art. 1 of Protocol No. 1, European Convention on Human Rights. See Kern Alexander, ‘Bank Resolution Regimes: Balancing Prudential Regulation and Shareholders Rights’, 9 Journal of Corporate Law Studies (2009), at p. 71.

    Google Scholar 

  32. Parliamentary Record 2008–2009, A-section, p. 3768.

  33. See Art. 101, para. 4, of the Financial Undertakings Act (Art. 5 of the April 2009 Revision).

  34. See Art. 103, para. 2, of the Financial Undertakings Act (Art. 7 of the April 2009 Revision). In a general bankruptcy, however, the trustee in bankruptcy shall in particular take care to conclude the bankruptcy proceedings without undue delay. Moreover, he is bound by the decisions of a meeting of creditors in disposing of the interests of a bankrupt estate. See Arts. 122 and 127 of the Bankruptcy Act.

  35. See Art. 103, para. 1, of the Financial Undertakings Act (Art. 7 of the April 2009 Revision).

  36. See Art. 10, para. 2, of the April 2009 Revision.

  37. See S.A. Kepler Capital Markets and Landsbanki Islands hf. v. Mr. Frederic Giraux, 4 November 2010, Paris Court of Appeal, Pole 4 — Chamber 8. The French Court held that the winding-up rules of the April 2009 Revision could not be applied to Landsbanki, as there had been no court order for the bank to be wound up (instead, based on the legislative provisions, it simply automatically went into winding up on the expiry of the moratorium). The French Court found that this had been a legislative action which did not fulfil the criteria of French law (incorporating the Winding-up Directive) regarding the application of foreign law on winding-up proceedings of a financial undertaking. It must be noted, however, that it is questionable whether it is a matter for the French Court to decide whether the bank is subject to an EEA reorganisation measure and winding-up proceedings in Iceland. The reorganisation measures and the winding up should be applied in accordance with the laws applicable in the home member state. Icelandic law applies to the legal effect, procedure and implementation of the moratorium and winding up.

  38. See Temporary Provision II of the April 2009 Revision.

  39. See, e.g., Jefferies International Ltd v. Landsbanki Islands hf [2009] WWHC 834, 28 April 2009, QBD, Commercial Court.

  40. See Alexander, supra n. 36, at p. 63.

  41. Decision of the FME on the disposal of assets and liabilities of Glitnir to New Glitnir on 14 October 2008, see: <http://fme.is/lisalib/getfile.aspx?itemid=5687>; decision of the FME on the disposal of assets and liabilities of Kaupthing to New Kaupthing on 21 October 2008, see: <http://fme.is/lisalib/getfile.aspx?itemid=5725>; and decision of the FME on a second amendment to the decision of the FME dated 9 October 2008 on the disposal of assets and liabilities of Landsbanki to New Landsbanki, see: <http://fme.is/lisalib/getfile.aspx?itemid=5746>.

  42. The Icelandic government and the creditors of the old banks agreed that the creditors would own shares in the new banks: New Landsbanki (now NBI) 19%, New Kaupthing (now Arion) 87% and New Glitnir (now Islandsbanki) 95%. See: <http://www.ministryoffinance.is/news/nr/12746>.

  43. See Art. 102, para. 3, of the Financial Undertakings Act (Art. 6 of the April 2009 Revision). No changes were made to that rule under the April 2009 Revision.

  44. See Art. 9 of Act No. 98/1999 on Deposit Guarantees and Investor-Compensation Scheme.

  45. ESA monitors the fulfilment of the obligations under the EEA Agreement with regard to the EFTA side, while the European Commission does the same as regards the EU side. See Art. 108 of the EEA Agreement.

  46. EFTA Surveillance Authority Decision of 15 December 2010 to close seven cases against Iceland commenced following the receipt of complaints against that state regarding capital movements and financial services (Case Nos: 65843, 66740, 66793, 66794, 66795, 66797 and 66935). See: <http://www.eftasurv.int/media/decisions/571071.pdf>.

  47. Parliamentary Record 2008–2009, A-section, p. 1075.

  48. See Art. 2, para. 4, of the Investigation Act.

  49. See ibid., Art. 1, para. 1.

  50. See ibid., Art. 4, paras. 4 and 5.

  51. See ibid., Art. 6, para. 1.

  52. See ibid., Art. 6, para. 3. However, professional lawyers, auditors or other assistants were not to be required, for the purposes of the SIC’s investigation, to provide information entrusted to them, unless permitted by the interested person. See Art. 6, para. 4.

  53. Parliamentary Record 2008–2009, A-section, p. 1080.

  54. See Art. 7, para. 1, of the Investigation Act.

  55. See ibid., Art. 8, para. 1. Intentional failure to comply with the duty to provide information led to fines or imprisonment for up to two years. The same penalty was applied for providing the SIC with false or misleading information or for hiding, spoiling or destroying evidence requested by the SIC. The Act on Procedure in Criminal Cases applied in such cases. However, it did not apply if a person declined to provide an answer to a question on the grounds that the answer might contain an admission or indication of punishable or disreputable conduct, or factors likely to cause significant financial loss. See Art. 11 of the Investigation Act.

  56. Parliamentary Record 2008–2009, A-section, p. 1083.

  57. Ibid., p. 1073.

  58. See Art. 6, para. 1, of the Investigation Act. Chapter 22 of the SIC Report contains an overview of suspicious conduct that should be regarded as criminal.

  59. See Art. 14, para. 6, of the Investigation Act.

  60. See ibid., Art. 1, para. 1.

  61. See ibid., Art. 14, para. 4.

  62. SIC Report, Chapter 21, Volume 7, p. 119.

  63. Parliamentary Document 330 — Case 286 (2009–2010), p. 5.

  64. See Art. 19 of the Investigation Act as amended by Act No. 146/2009.

  65. Although not mentioned in the Parliamentary bill or other legislative history, it is likely that the wide-ranging scope of the Lugano Convention plays a significant role. According to Art. 5, para. 3, of the Convention, a person domiciled in a contracting state may, in another contracting state, be sued in matters relating to tort, delict or quasi-delict, in the courts of the place where the harmful event occurred. The European Court of Justice has held that the equivalent article in the Brussels Convention (now Regulation No. 44/2001/EC) was intended to cover both the place where the damage occurred and the place of the event giving rise to it, where the two are not identical. The plaintiff therefore has the option of suing either in the place of acting or in the place of damage. See Case 21/76 Bier v. Mines de Potasse d’Alsace [1976] ECR 1735. The same rule has been applied in cases of defamation. See Case C-68/93 Fiona Schevill v. Presse Alliance [1995] ECR I-415. National courts have, for example, allowed for suits against persons for publication on the internet. This has been criticised as being ‘libel shopping’.

  66. Parliamentary Document 330 — Case 286 (2009–2010), p. 4.

  67. For example, in the UK it was the Financial Supervisory Authority (FSA) itself that analysed its own supervisory approach. See Turner Review. A Regulatory Response to the Global Banking Crisis, March 2009, at p. 86 et seq., available at: <http://www.fsa.gov.uk/pubs/other/tumer_review.pdf>.

  68. See Report of the High-Level Group on Financial Supervision in the EU chaired by Jacques de Larosière, Brussels, 25 February 2009, and the Turner Review, supra n. 81.

  69. SIC Report, Chapter 1, Volume 1, p. 29.

  70. Ibid., p. 31 (p. 1 in English version).

  71. Ibid., p. 34 (p. 4 in English version).

  72. Ibid., p. 46 (p. 17 in English version).

  73. Ibid., p. 45 (p. 17 in English version).

  74. Ibid., pp. 44–45 (p. 16 in English version).

  75. Parliamentary Record 2008–2009, A-section, p. 829.

  76. See Art. 1, para. 1, of the Special Prosecutor Act.

  77. See ibid., Art. 1, para. 2.

  78. See Art. 5, para. 1, of the Special Prosecutor Act.

  79. Parliamentary Record 2008–2009, A-section, p. 833.

  80. See, e.g., Jean Dermine, ‘European Banking Integration: Don’t Put the Cart before the Horse’, INSEAD, Fontainebleau, 11 October 2005; Dirk Schoenmaker and Sander Oosterloo, ‘Financial Supervision in an Integrating Europe: Measuring Cross-Border Externalities’, 8 International Finance (2005) pp. 1–27; Inwon Song, ‘Foreign Bank Supervision and Challenges to Emerging Market Supervisors’, IMF Working Paper WP/04/82 (May 2004).

  81. Commission of the European Communities, Commission Staff Working Document, European Financial Integration Report (2007), SEC (2007) 1696, at pp. 10 and 17.

  82. Reint Gropp, Marco Lo Duca and Jukka Vesala, ‘Cross-Border Bank Contagion in Europe’, European Central Bank Working Paper Series 662 (July 2006).

  83. Schoenmaker and Oosterloo, supra n. 96, at p. 4, point out that the scope for control by host countries of these subsidiaries is limited in practice. The authors explain that key decisions are often taken by the parent company in the home country and the financial health of the subsidiary is closely linked (via intra-group transactions and/or joint branding) to the well-being of the financial group as a whole. The effective control of large financial groups is primarily in the hands of the consolidated supervisor in the home country (de facto control).

  84. See Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions (recast), especially Arts. 29–37 (Powers of the competent authorities of the host Member State).

  85. See the Commission Communication on the general good, SEC (97) 1193 final, 20 June 1997. See further reading Michael Blair and George Walker, Financial Services Law (Oxford, Oxford University Press 2006), at pp. 773–774; Hal S. Scott, International Finance — Transactions, Policy and Regulation, 15th edn. (New York, Foundation Press 2008), at pp. 232–233. It is pointed out that the concept of general good cannot be used to circumvent the liberalisation process itself and that it is no longer relevant in the areas that are specifically harmonised, like authorisation, prudential supervision and capital adequacy requirements. On the other hand, there remains room for it particularly in the area of small investors’ protection under their own (host country) rules and probably also in the combating of (serious forms of) fraud and other irregularities. See Jan Dalhuisen, Dalhuisen on Transnational and Comparative Commercial, Financial and Trade Law (Oregon, Hart Publishing 2007), at p. 1129.

    Google Scholar 

  86. David Mayes and Jukka Vesala, ‘On the Problems of Home Country Control’, 10 Current Politics and Economics of Europe (2000) pp. 1–26.

    Google Scholar 

  87. Schoenmaker and Oosterloo, supra n. 96, at p. 4 (s).

  88. Robert A. Eisenbeis and George G. Kaufman, ‘Cross-Border Banking: Challenges for Deposit Insurance and Financial Stability in the European Union’, Federal Reserve Bank of Atlanta Working Paper 2006-15a (January 2007), at p. 19.

  89. Sveriges Riksbank (2003), Financial Stability Report, 2/2003, Stockholm, at p. 87.

  90. Eisenbeis and Kaufman, supra n. 104.

  91. Ibid., at p. 43.

  92. Kaarlo Jännäri, Report on the Banking Regulation and Supervision in Iceland: Past, Present and Future, 30 March 2009, at p. 10.

  93. See SIC Report, Chapter 18, Volume 6, p. 1.

  94. Ibid., p. 4.

  95. Ibid., p. 54.

  96. Jännäri, supra n. 108, at p. 17.

  97. See Government Declaration, 6 October 2008, available at: <http://www.forsaetisraduneyti.is/frettir/nr/3032>. It must be noted, however, that the Declaration is not legally binding as it was never incorporated into law. For such a declaration to be binding it must be incorporated into the national budget, the supplementary budget or into general legislation. See Stefán Már Stefánsson and Lárus L. Blöndal in the Icelandic newspaper Morgunblaðið, 13 January 2010.

  98. See the decision of the FME on the appointment of a Receivership Committee for Landsbanki, available at: <http://www.fme.is/lisalib/getfile.aspx?itemid=5670>.

  99. HM Treasury believed ‘that action to the detriment of the United Kingdom’s economy (or part of it) has been or is likely to be taken by certain persons who are the government of or resident of a country or territory outside the United Kingdom’. See Landsbanki Freezing Order 2008 No. 2668, available at: <http://www.opsi.gov.uk/si/si2008/uksi_20082668_en_1>.

  100. On 16 October 2008, the Central Bank of Iceland stated that problems with international payments to and from the country were ‘directly attributable to the extremely harmful actions taken by the British authorities’. See: <http://www.sedlabanki.is/?PageID=287&NewsID=1920>.

  101. See Decision of 8 March 2010 of the District Court of Amsterdam, Civil-Law Sector, Case [case list number] 450212 / HA RK 10-102.

  102. See: <http://eng.forsaetisraduneyti.is/news-and-articles/nr/3049>.

  103. See: <http://eng.forsaetisraduneyti.is/news-and-articles/nr/3050>.

  104. See: <http://eng.forsaetisraduneyti.is/news-and-articles/nr/3229>.

  105. See: <http://www.ministryoffinance.is/publications/news/nr/13769>.

  106. Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes.

  107. Art. 3(1) of the EU Deposit Guarantee Directive.

  108. Ibid., Art. 4(1).

  109. Ibid., Art. 6(1).

  110. See SIC Report, Chapter 17, Volume 5, pp. 214–215 (p. 25 in English version).

  111. For example, this seems to have been the view of some people within the Icelandic administration and government institutions. See SIC Report, Chapter 17, Volume 5, pp. 255–260 (pp. 73–78 in English version). This is interesting as a bill that later was passed as the law implementing the EU Directive explicitly stated that ‘[n]o further claims can be made against the Fund at a later stage even if losses suffered by claimants have not been compensated in full’. See Parliamentary Records, 1995–1996, A-section, p. 1842.

  112. See, e.g., Mads Andenœs, ‘Deposit Guarantee Schemes and Home Country Control’, in Ross Cranston, ed., The Single Market and the Law of Banking, 2nd edn. (London, Lloyd’s of London Press 1995) p. 113; Nevenko Misita, ‘Depositor Protection: An EC Law Perspective’, 4 Journal of International Banking Regulation (2003) p. 254.

    Google Scholar 

  113. See Misita, supra n. 133, at pp. 267–268.

  114. See SIC Report, Chapter 17, Volume 5, pp. 266–267 (pp. 85–86 in English version).

  115. See Letter of Formal Notice to Iceland for failure to comply with its obligations under the Act referred to at point 19a of Annex IX to the EEA Agreement and Art. 4 of the EEA Agreement, dated 26 May 2010, p. 7.

  116. See ibid., p. 7. In this respect, ESA refers to paras. 26 and 27 of the ruling.

  117. See ibid., pp. 8–9. In this respect, ESA refers to paras. 30 and 31 of the ruling.

  118. See SIC Report, Chapter 17, Volume 5, p. 199 (p. 8 in English version).

  119. Proposal for a Council Directive on deposit-guarantee schemes, COM (92) 188 final — SYN 415, pp. 7–8.

  120. Case C-222/02 Peter Paul et al. v. Bundesrepublik Deutschland [2004] ECR I-9425.

  121. See Michel Tison, ‘Do Not Attack the Watchdog! Banking Supervisor’s Liability after Peter Paul’, Working Paper Series Financial Law Institute, Universiteit Gent (2005), at p. 25. See also SIC Report, Chapter 17, Volume 5, pp. 268–269 (pp. 88–89 in English version).

  122. See SIC Report, Chapter 17, Volume 5, pp. 270–272 (pp. 90–92 in English version).

  123. See Investigating the Efficiency of EU Deposit Guarantee Schemes, European Commission, Joint Research Centre, Unit G09, Ispra (Italy), May 2008, p. 3, available at: <http://ec.europa.eu/intemal_market/bank/docs/guarantee/deposit/report_en.pdf>.

  124. The Functions and Organisation of Deposit Guarantee Schemes: The French Experience, Commission Bancaire, June 2001, available at: <http://www.banquefrance.fr/gb/supervi/telechar/2000_deposit.pdf>.

  125. Guidance for Developing Effective Deposit Insurance Systems, Financial Stability Forum, 7 September 2001, available at: <http://www.fdic.gov/deposit/deposits/intemational/guidance/guidance/finalreport.pdf>, at p. 8.

  126. See also Art. 18 of the consolidated version of the new Treaty on the Functioning of the European Union (ex Article 12 TEC).

  127. See Letter of Formal Notice to Iceland, 26 May 2010, supra n. 136, p. 14.

  128. See Maria Elvira Méndez-Pinedo, ‘Icesave — Iceland. The Icesave Agreements and Other National Measures in Response of the Financial Crisis: Revisiting the Principles of State Liability, State Aid and Non-Discrimination in European Law’, lecture given at EUI, Florence, 4 May 2010.

  129. See also Stefán Már Stefánsson and Lárus L. Blöndal in Morgunblaðið, 13 January 2010.

  130. It is interesting to compare this to rescue of the Irish banks. The European Commission explained that the non-discriminatory principle would have to guide the action of the Irish government regarding all banks with systemic relevance to the Irish economy, regardless of origin. See: <http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1495&format=HTML&aged=0&language=EN&guiLanguage=en>.

  131. Stefán Már Stefánsson and Lárus L. Blöndal in Morgunblaðið, 13 January 2010. See also the views of these authors in ‘The Icesave Conflict — Why Iceland Can and Should Not Only Say Yes’, 16 Avenir Magazine (2010) pp. 10–11.

  132. It is notable that after the amendments, Art. 7(1) of Directive 2009/14/EC stipulates the following: ‘Member States shall ensure that the coverage for the aggregate deposits of each depositor shall be at least EUR 50,000 in the event of deposits being unavailable’. The SIC Report points out that comparison of the provisions shows that ‘deposit-guarantee schemes shall stipulate…’ has been replaced by ‘Member States shall ensure…’. Thus, the change is twofold. On the one hand, the obligation stipulated in the provision is not addressed to the ‘deposit-guarantee schemes’ as before but to the ‘Member States’. On the other hand, the verb accompanying the subject has been changed from ‘stipulate’ into ‘ensure’. See SIC Report, Chapter 17, Volume 5, p. 275 (p. 96 in English version).

  133. The European Commission seems to take this view according to a query by Morgunbladid and ABC. See: <http://www.mbl.is/mm/frettir/innlent/2010/08/13/olikar_forsendur_fyrir_greidsluskyldu>. See also ABC’s Nyheter query, available at: <http://www.abcnyheter.no/nyheter/okonomi/100728/icesave-kan-utlose-dramatisk-bank-strid-eu>.

  134. Tobias Fuchs, ‘Unzureichende Einlagensicherung und Staatshaftung im Europäischen Wirtsschaftsraum’, Europäisches Wirtschafts- und Steurrecht (2009) p. 516, finds that Iceland is not in breach of the EU Directive as far as the minimum deposit protection is concerned.

  135. See SIC Report, Chapter 17, Volume 5, p. 196 (p. 5 in English version).

  136. See Art. 4, para. 2, of the EU Deposit Guarantee Directive.

  137. White Paper — Financial Services Policy 2005–2010, available at: <http://ec.europa.eu/intemal_market/finances/docs/white_paper/white_paper_en.pdf>.

  138. Ibid., at p. 10.

  139. The de Larosière Report, supra n. 82, p. 34.

  140. SIC Report, Chapter 17, Volume 5, pp. 284–296 (pp. 107–119 in English version).

  141. See Arts. 29–37 of Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions (recast).

  142. See Arts. 40–43.

  143. Recommendation 14 in the de Larosière Report, supra n. 82, p. 26.

  144. The Turner Review, supra n. 81, p. 38, summarises lessons from the Icelandic banking crisis. It points out that the FSA, as a host country supervisor, ‘had only limited powers relating to the supervision of local liquidity’.

  145. Jean Dermine, ‘Avoiding International Financial Crises, an Incomplete Reform Agenda’, 13 May 2009, at p. 10, available at: <http://ssm.com/abstract=1406985>, is of the opinion that not a lack of regulations but poor enforcement by banking supervisors has contributed to the crisis.

  146. Joseph E. Stiglitz, ‘Regulation and the Theory of Market and Government Failure’, April 2009, at p. 3, available at: <http://www2.gsb.columbia.edu/faculty/jstiglitz/download/papers/2009_Regulation_Theory_Failure.pdf>.

  147. Ibid., at p. 11.

  148. Scott, supra n. 101, at pp. 236–237. The so-called lead supervisor approach (consolidating supervisor), according to which the lead supervisor may be but is not necessarily the home supervisor, has also been discussed. It has been opposed on the grounds that host countries cannot politically accept leaving to foreign regulators matters that can seriously affect their economies and citizens.

  149. See Turner Review, supra n. 81, at p. 72. See also Jännäri, supra n. 108, at p. 37.

  150. Dermine, supra n. 168, at p. 19. In this respect, he points out that the fear of bankruptcy would create private incentives among debt holders to monitor bank risks.

  151. Dermine, supra n. 168, at p. 10, points out, as regards the ‘too big to fail’ doctrine, that systemic institutions benefit from a significant source of competitive advantage: the ability to raise debt at a lower cost of funds. There is no doubt in his mind that this fact has facilitated the creation of very large financial institutions.

  152. Eisenbeis and Kaufman, supra n. 104, at p. 43.

  153. See Scott, supra n. 101, at p. 197.

Download references

Author information

Authors and Affiliations

  1. Faculty of Law, University of Iceland, Iceland

    Eyvindur G. Gunnarsson (Associate Professor of Law)

Authors
  1. Eyvindur G. Gunnarsson
    View author publications

    You can also search for this author in PubMed Google Scholar

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Gunnarsson, E.G. The Icelandic Regulatory Responses to the Financial Crisis. Eur Bus Org Law Rev 12, 1–39 (2011). https://doi.org/10.1017/S1566752911100014

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1017/S1566752911100014

Keywords

Search

Navigation