It’s as if Icesave has completely evaporated from the agenda in the three countries involved – Iceland, the UK and the Netherlands – but the accounts haven’t yet be settled. Iceland still owes money to the UK and the Netherlands as the two countries compensated the deposit holders according the EU insurance guarantee regulation.
The IMF has recently passed fund’s programme on Iceland to the next level. The prerequisite had been to solve the Icesave dispute – since it is a major economic variable – but Iceland found a way to satisfy the fund’s demand though nothing has been resolved. As so often, Iceland seems hell-bent on wriggling out of the Icesave fetters rather than solving the matter. It remains to be seen how the matter evolves now that there is a new government in place in the UK.
I’m not convinced that a Tory + LibDem government will make a difference for Iceland. According to a source who has raised the Icesave dispute with a leading Tory minster the answer was that the Tories shared Labour’s view on Icesave and didn’t really see any reason for a special lenience towards Iceland.
The report of the Althingi’s Investigative Commission tells a rather aggravating story of how Icesave was handled but in Landsbanki and elsewhere. Contrary to Kaupthing that founded its internet accounts as a UK subsidiary that consequently was guaranteed by the UK deposit guarantee scheme Landsbanki established Icesave as a branch. That gave Landsbanki greater freedom to move the Icesave money around, i.a. to lend it out in Iceland, exactly what the UK FSA was worried about but didn’t hinder.
The report shows very clearly that Landbanki’s management was time and again asked to change the Icesave set up. In early July the FSA thought it had an agreement in place with Landsbanki, intended to be fulfilled by the end of 2008: the bank promised to move Icesave into a UK subsidiary, to cap interest rates – and to limit Icesave to £5bn.
But Landsbanki thought otherwise. The Landsbanki management was willing to consider moving the accounts into a subsidiary but unwilling to cap to either interest rates or the amount they took in. The Landsbanki management seemed to be sure that Icesave was under the Icelandic deposit guarantee scheme that according to EU rules guaranteed deposits up to €20.000.
FSA now threatened the bank to use its powers to protect UK deposit holders. The Icelandic Central Bank and the Icelandic Financial Services Authorites, FME followed these exchanges of view. Some Icelandic civil servants contemplated whether Icelandic authorities could intervene, no action as taken and at a political level the problem didn’t seem to exist.
Early September 2008 trade minster Bjorgvin G Sigurdsson and chairman of the FME Jon Sigurdsson met with the Chancellor of the Exchequer Alistair Darling. Darling’s impression was that the Icelanders didn’t understand the gravity of the situation. And probably they didn’t: although there were different views on Iceland’s legal obligations to to guarantee the €20.000 that EU rules demanded nothing was done in Iceland to clarify the issue – an utterly shocking disregard of the alarming effects that Icesave cave to have for the Icelandic economy.
But FSA didn’t make use of any drastic means, only kept threatening Landsbanki that sought legal opinion on the FSA’s power to coerce the bank into seting up a subsidiary. The bank’s legal advicers doubted that the FSA had the authority to order the bank to take action and the bank continued to resist the FSA demands. In the end the HM Treasury did inded take action and made use of an anti-terrorist legislation to freeze all Icelandic assets though the intention was only to freeze Landsbanki’s assets.
The report shows clearly that Icelandic regulators didn’t pursue the matter with Landsbanki. Funnily enough, the FSA was more adamant in this matter – certainly not because they were dying to pay but because they wanted clarity – than Icelandic authorities and politians that seemed blissfully unperturbed by the possible consquences of Icesave.
In the aftermath of the collapse, Bjorgolfur Thor Bjorgolfsson who with his father owned 40% of Landsbanki vehemently claimed that the bank had done everything in its power to move Icesave into a subsidiary and solve the burden of Icesave on the Icelandic state. The Report tells a very different story: the bank did everything it could to counter FSA’s attempt in this direction. In this matter, as in many others, Bjorgolfsson’s account isn’t trustworthy.
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