Sigrún Davíðsdóttir's Icelog

Can Iceland just pay without any agreement?

with 17 comments

President Olafur Ragnar Grimsson has taken a lead in speaking on Iceland’s behalf as to what can be done now post-Icesave no. In an interview with Bloomberg he spoke of the assets of Landsbanki, their value, and that they could and would be used to pay out Icesave. He is propagating the idea that Iceland can just pay, whatever suits Iceland, no matter what.

Here is an interesting comment – posted on an earlier Icelog by Mike, a UK Nordic financial analyst – on the president’s stance:

I have heard the Bloomberg interview and the President doesn’t do as well as you think – he keeps referring to something that has very little to do with Icesave itself, namely the residual value of Landsbanki’s assets.

At the very beginning (in 2008) an offer was made to the British and Dutch authorities which amounted to Iceland saying “There you go, take over Landsbanki and take the Icesave money from that.” The reply from the British and Dutch was a polite “No”. They pointed out that there were other claimants against the Landsbanki assets and it wasn’t a simple matter to establish that a deposit guarantee fund could jump the queue of the other claimants.

Grimsson appears to be repeating this line in the interview. In effect he is saying that the British and Dutch governments can take the money from the Landsbanki estate – but he forgets that that money is actually owned by other people. In the interview he is giving away something which is not his to give away. He is conflating the Icelandic state with the Landsbanki Resolution Committee and as we keep being told: Iceland did NOT nationalise its banks, so the government can have no say in how the Landsbanki assets are assigned to the claimants. Thus the President sounds generous but actually he has nothing to give away.

The whole situation has been made worse by the Emergency Act of 2008 which reordered the priority of the claimants – this is a highly controversial move and strong arguments can be made that it breaks a host of other laws relating to property rights and discrimination. The fact that the act is essentially retrospective makes it even worse.

The various claims against the Landsbanki estate are currently going through the courts.”

De Jager, the Dutch minister of finance, yesterday presented a letter on Icesave to the Dutch Parliament:

Dear chairman,

On April 9, the Icelandic people rejected the agreement about Icesave, signed by negotiators of Iceland, the Netherlands and the United Kingdom in December 2010. This outcome is a real disappointment both to me and to the Icelandic government. After a process of negotiations lasting two years, there was an agreement that could count on a lot of support from the Icelandic government. The agreement would have made it possible for Iceland to put an end to this ongoing issue, under favorable conditions. Sadly, this opportunity was not seized.

The time of negotiations is now over. The lack of a solution forces us and Iceland to let the law take its course. Now that it is clear that the parties involved will not be able to come to a solution, the EFTA Surveillance Authority (ESA) will probably resume its infraction procedure against Iceland. On May 26 2010, the ESA ruled that Iceland is obliged by the EU guidelines regarding deposit insurance systems to compensate the Icesave account holders up to the sum of €20,887. From this it can be concluded that Iceland is obliged to repay the Netherlands and the United Kingdom, who have advanced this money.

When the Iceland government decides not to adhere to the ruling of the ESA, we will go to the EFTA Court. The Netherlands and the United Kingdom will support the ESA in this case, if so desired. The Netherlands itself does not have a legal position at the EFTA Court.

This week there will be a meeting between my Ministry and representatives of the ESA. In this meeting, we will also call attention to the complaint filed at the ESA by the 100,000+ group, about which there has been no reaction from the ESA so far.

The Netherlands will remain in close contact with the United Kingdom about steps to be taken regarding Icesave.

Together with the UK we are also studying the procedure for an out of court settlement made possible by article 111 of the Treaty. In this procedure, the Commission will play a key role.

The outcome of the referendum has no influence on the payment of funds from the assets from Landsbanki to priority creditors (among them the United Kingdom, the Netherlands, public authorities and the 100.000+ group). The Icelandic government expects that a first payment can be made later this year, that would cover 30% of the amount owed to priority creditors. The curators estimate that they will eventually be able to pay 90% of the nominal claims of priority creditors from the assets. 
Apart from the financial implications for the United Kingdom and the Netherlands, the Icesave file can also have grave consequences for the functioning of the internal market for financial services. Therefore I have faith that both the ESA and the European Commission will do all they can to find a good solution for this issue.


Mr. drs. J. C. de Jager 
Minister of Finance

Yesterday, Prime Minister Johanna Sigurdardottir presented an Icesave report in Althingi, concluding:

“The Icesave dispute will be solved in the end, whether in one, two or three years. And when the possible responsibility of Iceland is clear, Icelanders will do everything possible to honour their obligation.”


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Written by Sigrún Davídsdóttir

April 13th, 2011 at 7:42 am

Posted in Iceland

17 Responses to 'Can Iceland just pay without any agreement?'

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  1. Sigrún,
    your informant “Mike, a UK Nordic financial analyst” does not appear to have made a competent analysis before he commented to you. His suggestion that Iceland’s President offered to give NL and UK Landsbanki’s assets _acting_on_behalf_of_Iceland_ is flatly unfound. To begin, Landsbanki is as Mike noted, not an Icelandic asset, it is privately owned. The base for the referenda was that the Icelandic population not being Landsbanki’s owners, they do not owe Landsbanki’s debts. That Landsbanki assets can pay Landsbanki debts is implicit in any reference to those debts being paid by Landsbanki from their assets, even if in phrasing reference is made to “Iceland” paying. “Iceland” would “pay” by letting Landsbanki pay its debt from its assets. I apologize for English if these common verbal structurings are difficult to untangle, for yourself or Mike. Were it not for the confusion if language it would be disingenuous to imply that Grimsson would not assume Landsbanki, no Iceland being the payee to be implicit and recognizable.

    Next, Mike notes, correctly, that in 2008 NL and UK turned down offer of the Landsbanki assets from which they could now be paid. He fails to recall that in 2008 Landsbanki was publicized to be a “house of cards” and the assets to all be “vapour”, or all gutted husk and shell, as so many of Britain’s banks’ assets were even then beginning to be exposed to be.

    It was fortunate for Landsbanki investors that NL and UK thought that, so they still have the assets that Iceland would have then, though they were not theirs to give away, given away. The assets have proved to have been real, and conservative enough the loans have continued to be paid and the assets have appreciated, even locked in receivership,held fallow and only maintained.

    Had Mike looked into the state of those assets he would have found the figures Grimmsson referenced are Landsbanki figures and reference repaying Landsbanki debts, and so _included_ any owed to NL and UK, with what is owed to other creditors.

    Mike also referenced “The Emergency Act of 2008”, which is an American “bank bailout” act that causes some turmoil amongst the beggars who grabbed for the handouts, shuffling and trading what they perceived “worthless assets”, that the act called “troubled”. Yes, that shuffling has caused confusion, including who owns what, and fights over who can get back what they unloaded as worthless and now find wasn’t…

    oddly missing from Mike’s deprecatory “analysis” is any mention of Gordon Brown’s “Emergency Act”, that, by treaty agreements made Iceland economically pariah for being a “terrorist nation”, and the effects of that designation of Iceland’s abilities to meet and respond to the economic crisis caused by the difficulties Landsbanki was thrown into by UK FSA impositions and invocation of that act, or any responsibilities UK may have for the consequences of its irresponsibility and recklessness.

    Was UK’s economically paralyzing Iceland by paralyzing its economic interrelationship with all treaty-parties in the EU “just one of those things”? and to be shrugged off? And what of the EU’s silence and inaction then? The EU silence and inaction effectively condoned UK’s abuse of anti-terrorism agreements through use of those in waging its market war against Iceland’s invading banking and business interests.

    Mike is correct in recognizing that there is lots of fodder for the courts. I suspect that we will find the best effect of the referenda to be having gotten the panicky old women (of both sexes) in Iceland’s Althingi out of the picture so some work toward business-like resolution can begin.


    14 Apr 11 at 2:36 am

  2. Although these are my private opinions I would still like to point out four things:


    The simple fact that UK/NL decided in June 2009 that DIGF (Depositors and Investors Guarantee Fund in Iceland) would get a loan from FSCS and DNB for bailing out the depositors of Icesave.
    When this was agreed on DIGF had fulfilled the obligation set by the EEA/EU scheme and the Icelandic laws.

    It is not for the ESA to decide if this was a correct way but it was the State authorities to decide and if ESA accepts that with the original agreement between UK/NL and DIGF was fulfilled, then the possible law suit against Iceland is dead in the water. Bear in mind that the agreement was provisionally sign in June 2009 prior to the end of the extended deadline for paying out.
    I think UK/NL realized this and therefor tried to bully our government into signing these Icesave I, II and III agreements… But current government sadly has been willing to sign any agreement that would give them access to the EU.

    My personal view (trying to put my feelings aside) and look at this in regards of EEA/EU directives..
    1) It shall be a private Fund
    2) The Fund shall pay depositors
    3) If it can’t it may take a loan
    4) It got a loan from UK/NL
    5) Thereby it paid the depositors in time
    This might be interpreted as full compliance under the EEA/EU directives and Icelandic laws

    So UK/NL claims should be on DIGF and of cause without sovereign guarantee and I think this would be the best solution for the EU.
    If not then the flawed EEA/EU directive won’t go in front of the EFTA court and thereby gives EU/EEA regulators time to ament these flawed directive before next bank crises that we know are around the corner. Also just imaging the outrages that nations will be dealing with when there citizens will realize that their government bailed out all these bankster without any clear legal ground.



    Also I personally argue that the EU/EEA regulation enforces a sovereign guarantee over DIGF..

    About the directive
    Iceland lost 85% of their bank “over night” and the EU guarantee scheme does not support a systemic crisis
    “It was not designed to deal with a systemic crisis but with the collapse of a single bank” – W.J. Bos, Dutch Finance Minister (Mar09)

    The EU banking directive 94/19/EC does not mention sovereign guarantee on the depositors’ insurance schemes. It prohibits such guarantee to make banks from small nation being able to compete with banks from rich nations. The Icelandic laws 98/1999 was made in full compliance with directive 94/19/EC regarding the DIGF.

    I would like to point out that:

    Article 2 of 98/1999 ….
    The Fund is a private foundation…most might read this as a Private Fund without sovereign guarantee!!

    Article 6 of 98/1999…
    The total assets of the Deposit Department of the Fund shall amount to a minimum of 1% of the average amount of guaranteed deposits….
    Common knowledge since 1999…

    Article 10 of 98/1999….
    I don’t see in the law that the Fund has to pay in EUROs… just that the amount shall be linked to the EUR exchange rate of 5 January 1999

    These laws are public documents so the authorities (UK/NL) trying so hard to free themself of any warranty have had access to them for over 12 years.

    My point is that UK and NL government have known since 1999 how Iceland implements directive 94/19/EC but Iceland did it in similar way as any other EEA/EU party.



    Some have been shouting about the fact that Iceland did give Domestic guarantee but The emergency law of October 2008 were not deliberate attempts to discriminate against deposits in branches of Icelandic banks in other countries but rather extraordinary measures that were taken to preserve the remaining parts Iceland’s own domestic banking and payment system when the three largest banks of the country had effectively collapsed.

    Find a judge that would prohibit an independent country to secure the core payment systems of its country. If they haven’t we haven’t been able to buy milk, sell you fish, pay salary, and buy food for our kids…

    I can only imagine what had happen if they haven’t done that…. I am a law abiding citizen but would have done anything to secure food and drugs for my family if I could not pay for them @ the store



    In our mind it has never been any doubt that Iceland would honor any international obligations but this will probably be decided by the EFTA Court. But I hope you can understand given the size of the payment and the effect that the debt would have, Iceland and Icelanders should be fully commended for showing how true democratic participation should work in a western society.

    As it now turns out, after a lengthy process of valuation of the Landsbanki assets by the EU and Icelandic government it appears that they will cover over 90% of the losses so one way or another the UK/NL will get a full refund from DIGF.

    Fundamentally though, Icesave is much much more important than being a diplomatic row between David and Goliath. The ruling of the EFTA Court in what will be a landmark case for EU/EEA law will set a precedent as whether it is acceptable for the people of a nation to be allowed to offer a state guarantee on the overseas or domestic operation of a bank. My personal opinion is that it is anti-competitive, creates distortions in the market and is a serious moral hazard by encouraging risky behavior by banks.

    Had there been say Germany, Japan, China or USA who had a privately owned bank operating in the UK under similar circumstances, I do often wonder whether the UK would have pursued the same diplomatic approach towards these countries or whether they just saw Iceland and an easy target.

    Jon Olafsson

    14 Apr 11 at 8:46 pm

  3. R.L. Dogh,

    Thanks for your comments. To answer some of them.

    The debt towards the Icesave depositors does not belong directly to the Landsbanki estate. The Icelandic deposit guarantee act which is the implemntation of the Directive reflects that if depositors cannot access their money then TIF takes on the responsibility of payment. How that is done is up to each Member State. According to Icelandic law if TIF doesn’t have the money then it can take out a loan. In such a case TIF becomes a creditor of the estate of the collapsed bank. As such it has a claim against the assets of the bank but it is not a priority or secured claimant. As the Landsbanki wholesale depositors have already done in court they have re-asserted their position alongside other priority creditors. So my point on who has a claim on the assets of Landsbanki remains good. The Icelandic government or its agencies have no part in that process.

    Secondly, you are quite wrong about why the British and Dutch governments refused to take over Landsbanki. The key reason was that to do so would have been challenged immediately in law courts throughout Europe – it was essentially illegal. The British and Dutch governments had no legal jurisdiction to do this – even with the agreement of the Icelandic government it would still have been illegal. The actual state of Landsbanki had no part to play in that decision. _Whatever_ was left of the estate, whether great or small, would have been claimed by depositors, secured creditors and senior bond holders. This is what is happening now.

    Finally, with regard to the freezing order. Most Icelanders have faulty memories about the order of events over the crucial weekend and Monday/Tuesday which conveniently absolves them of any feelings of responsibility.

    The crux is that at the start of that weekend Landsbanki began to move British assets out of its London branch and into Iceland. (Kaupthing couldn’t try this trick since it was regulated in the UK and was told to stop immediately.) Note that please: British assets, including I might add some of the Icesave deposits held in London. The British authorities on Friday asked the Icelandic authorities to stop those movements immediately (recall that this is an Icelandic regulated bank so the British had no day-to-day power to stop this happening). The movement of money and assets continued throughout the weekend. Alistair Darling refers to this movement in his interview with Sigrún (about 12 mins 40 secs). The Icelandic authorities – specifically the FME and the Sedlabanki – made no attempt to stop the movement of British assets from the UK. Then the Emergency Law (125/2008) was passed. This specifically ring-fenced ALL assets held within Iceland, so they were now beyond the reach of the British authorities. The response was swift and decisive – the freezing order was brought in. So please remember the order of events: British assets were taken away from Britain to Iceland and an Icelandic act of parliament stopped their repatriation. Then, and only then, was the freezing order issued.

    The reason it was so all encompassing was because it was known that Icelandic companies were using their web of cross-holdings and close cooperation to hide some of the movements. (Just as the Icelandic investigative authorities are now discovering for themselves.)

    The freezing order would never have happened if the British assets were not being taken and if the Emergency Act had not been passed. I have heard some financial analysts refer to what happened as “state approved theft”.

    Let me put this the other way around for R.L. Dogh.
    Imagine for a second that a British bank operating in Iceland began to take Icelandic money out of Iceland. The Icelandic authorities ask the British authorities to order the bank to stop this. The British authorities do nothing. Even worse the British parliament passes an act that forbids the return of those assets back to Iceland. Would _you_ be happy about that? I can imagine the screams of anger from the entire Icelandic population. There would be cries of “Bully!” and such like. So why do you think it is acceptable for Iceland to do that?

    And to be absolutely clear – we are two years down the line and not one penny of that money – BRITISH MONEY – has been returned.

    Mike (UK Nordic analyst)

    14 Apr 11 at 9:58 pm

  4. Just a few points to add to Mike’s response.

    >Mike also referenced “The Emergency Act of 2008″, which is an American “bank bailout” act

    When talking about Iceland, the Emergency Act (or Law) refers to Icelandic legislation that came into force 6th Oct 2008.

    >oddly missing from Mike’s deprecatory “analysis” is any mention of Gordon Brown’s “Emergency Act”, that, by treaty agreements made Iceland economically pariah for being a “terrorist nation”

    Mike’s explained the timeline, but I just wanted to point out that the ATCSA is not a treaty, it is a UK law that allows for freezing orders to cover precisely this sort of thing. There was no suggestion that Iceland was involved in terrorism. The freezing order did not activate some other treaty.

    >caused by the difficulties Landsbanki was thrown into by UK FSA impositions and invocation of that act

    Just to reinforce what Mike said, the freezing order came after Landsbanki was placed into receivership. (Well, IIRC part of the confusion was that it wasn’t clear exactly what had happened to Landsbanki, but it was clear that it was closed for business if you were not from Iceland.)

    >The EU silence and inaction effectively condoned UK’s abuse of anti-terrorism agreements

    There was no abuse of agreements, as the ATCSA is a UK law and not an agreement. Although subsequently it has been determined that it would have been desirable to separate the freezing order function from the anti-terror function, at the time it became law this was debated and rejected.

    >I suspect that we will find the best effect of the referenda to be having gotten the panicky old women (of both sexes) in Iceland’s Althingi out of the picture so some work toward business-like resolution can begin.

    Whilst there may have been some truth to this back when the Icelandic negotiating team was Icelandic, I doubt you could say the same about the one led by Lee Buchheit.

    What was arrived at for Icesave III was a “business-like resolution”. Jaw-jaw, war-war etc.


    15 Apr 11 at 8:43 am

  5. Interesting discussion! Just one point, re the UK measures against Landsbanki: as is clear from my interview with Darling – and from the SIC report – there was money going from the UK Icesave branch. Indeed, the whole raison d’etre for making Icesave a branch and not a subsidiary was to be able to shift the UK deposits effortlessly from the UK to Iceland.

    As the SIC report clearly shows, the UK FSA, too late as Darling mentioned, started worrying about Icesave in early spring 2008, made a series of requests to Landsbanki that were ignored/dragged out/not met. When the financial markets shook in early Oct. FSA and the UK Treasury lost patience with Landsbanki and used the freezing order, unfortunately also an instrument against alleged terrorist financing.

    The interesting thing is that neither Landsbank ResCom nor Icelandic officials have ever legally contested the use of the freezing order whereas Kaupthing ResCom tested the legality of the means used against Kaupthing Singer & Friedlander (where Kaupthing Edge was moved to the Dutch ING bank that, interstingly, failed few weeks later). The Kaupthing case brought out a lot of interesting information. It’s a great shame that nothing was done to test the Landsbanki freezing order since we would then know quite a bit more about that measure.

  6. Thanks for a great site Sigrun!

    Somehow I missed Jon’s post.

    >First: Loan

    I’ve seen this before, but never fleshed out. The biggest problem that I can see is that there has been no loan. The loan agreement was not with the TIF, but with the TIF and Iceland. All three (UK, TIF Iceland) had to sign it. Even if there’s a copy with the UK signature that the TIF signed, the Althingi altered the agreement before signing.

    So no loan, as a loan requires agreement from both (or in this case all three) parties on amount, terms, duration. If there is, please link to it or an news item on it.

    >Second: Regs

    Obviously, in itself, local Icelandic law has no bearing on whether or not Iceland complied with the EU directive.

    Regarding currency. What are you suggesting would happen with an ISK amount that is convertible at a set rate?

    Regarding Icelandic law. It’s not for the UK or NL to review another sovereign country’s laws for them. Iceland is either a country equal to all or it’s not, and with independence it became the former.

    >Third: Intent

    Either Iceland will be judged to have discriminated or not, whether they intended to or not is unimportant.

    I have no legal background, but I can’t see the non-discrimination argument succeeding just on practical grounds. However, if it does, I like the argument that the guarantee was in ISK and so top-up above the 20k euros should be in ISK. And subject to the capital controls. Still, that’d be another ISK 600bn, which would trash the ISK for a while.

    Fourth: Size

    I’m the first to point out relative risks of each route, but the expected figures given in the summary of the negotiating committee translate to less than 1k euros per capita. Not great, but not appalling.

    You are absolutely incorrect when you say “UK/NL will get a full refund from DIGF”, as obviously in the absence of a state guarantee, all of the funds recovered by the UK/NL will come direct from Landsbanki. That might sound pedantic, but it’s actually the whole point of Mike’s post that Sigrun has in the article.

    Finally, on whether the UK/NL would have pursued a bigger country for this (aka the “bully” argument). Assuming that Darling was not lying in his interview with Sigrun (for what it’s worth, I believed he was entirely truthful, but I accept that’d be harder for your average Icelander to accept), he’s quite clear that (a) it is common to have frank & honest discussions with countries where your interests are divergent and (b) Icelandic politicians/officials were not frank and honest.


    15 Apr 11 at 8:58 pm

  7. Mike,
    You are correct that the debt toward the Icesave depositors does not belong to the Landsbanki estate. It belongs to Britain.

    The Icelandic government has no legitimate part in the Icesave reimbursement business. It never at any time did have. The reason for this is that the debt belongs to Britain.

    The reason the debt belongs to Britain, and not to Iceland, is because Britain cut Iceland out. Britain also cut Landsbanki out.

    How did Britain cut Landsbanki and Iceland out? As you state, yourself, “Landsbanki began to move British assets out of its London branch and into Iceland”, whereupon, “British authorities on Friday asked the Icelandic authorities to stop those movements immediately”, but, “The movement of money and assets continued”, and, “The Icelandic authorities – specifically the FME and the Sedlabanki – made no attempt to stop the movement of [what you assert] British assets from the UK”, and, “Then the Emergency Law (125/2008) was passed”, which you assert, “ring-fenced ALL assets held within Iceland, so they were now beyond the reach of the British authorities”. Whereupon, “The response was swift and decisive – the freezing order was brought in.”

    That sums the events, with certain important errors. The first, and most significant, error is your “Landsbanki began moving British assets…” Landsbanki, as you noted before, was an Icelandic entity. Landsbanki’s assets were therefore not British. They were Icelandic. They may have been located in Britain, and they may have consisted of loans to Britains and deposits belonging to Britains, but they were, for being Landsbanki’s assets, and for Landsbanki being an Icelandic entity, the assets of an Icelandic entity.

    Note that it is the assets being ‘Icelandic’ (really, the assets of an Icelandic entity) that the whole construction of Icelandic responsibility stands on: Because Icesave deposits were held in trust as ‘Icelandic’ assets by an Icelandic entity, that entity was responsible for their safe-keeping, and Iceland, as Landsbanki’s sovereign, was responsible for the EAA required sovereign guarantee of deposits.

    So, over the weekend Landsbanki was not moving British assets, it was moving Landsbanki assets, and although it was moving those assets out of Britain it was not moving them offshore, it was moving them home to Iceland, onshore.

    Britain made a first error in assigning the assets being moved to be British assets.

    Britain made a second error in demanding the Landsbanki assets being legally moved by their legal owner, an entity not under Britain’s sovereign control, not be moved by their legal owner.

    Britain made a third error in presuming Iceland’s FME and Sedlabank to have authority to order Landsbanki to not patriate its assets (Note that Darling and Brown and Briain’s financial authorities were foolish if they thought Iceland’s authorities would stop Landsbanki patriating its assets, since those authorities had been actively participating in a campaign to drive Landsbanki out of Britain and back to Iceland. They should have been aware that Iceland would need to marshal all possible assets to prepare to meet the anticipatable costs Iceland could incur from British Icesave depositors who might object to becoming offshore-account holders demanding return of their deposits).

    Britain made a fourth error (if this was Britain’s error, not your own) in assuming that Iceland’s “Emergency Law 125/2008” could “ring-fence” “ALL assets held within Iceland”. EEA, International Merchant and EU regulations preclude sovereign law overturning international trust agreements, such as are formed when deposits are accepted by a deposit-taking entity and held in trust for those depositors. You covered the responsibility structure in your discussion of TIF.

    The Landsbanki assets, being the property of an Icelandic entity, were “beyond the [legal] reach of the British authorities”. Britain appears to have forgotten this. It appears to have determined to take the Landsbanki assets into its reach illegally, whom they might legally belong to be damned.

    And so Britain made its fatal error: borrowing your phrasing again, “the freezing order was brought in”.

    Britain used the freezing order to grab, impound, to all effect and purpose, steal, the privately owned assets of an Icelandic entity, which entity had been doing nothing illegal. Had been only patriating assets that it legally owned, moving its assets out of Britain, as Britain’s FSA, using regulatory pressures, had left it no alternative but to do.

    Because what you call “the freezing order” was anti-terrorism legislation, Britain’s use of it had far greater effect than to just enable it to illegally seize private property. It wrecked the whole of Iceland’s foreign trade economy.

    Had Britain let Landsbanki, an Icelandic entity, withdraw to its headquarters in Iceland, with its assets, and then Landsbanki had refused to honor the agreements it made with its British depositors, then Britain would have had a legal leg to stand on. Then Britain would have had the law on its side. Then Britain could have made its nationals whole and taken action against Landsbanki, and against Iceland, Landsbanki’s sovereign guarantor.

    But Britain did not give Landsbanki a chance to perform or not perform. Britain jumped the gun. Britain attacked an entity of another nation when it had no justification yet to even suspect that entity of wrongdoing, or intent to wrongdo. The facet is, Landsbanki’s moving its assets to Iceland, where its headquarters were, and Iceland’s securing all Icelandic assets to maintain them suggest that Landsbanki and Iceland recognized a need for all the capital they could secure arising, something like large numbers of Icesave depositors not interested to have their bank accounts become offshore-accounts and demanding returns of their deposits, and were preparing for it.

    Britain engaged in “state approved theft”, as you note some analysts to have phrased it, although that is a bit strong. Britain engaged in abuse of authority to pounce on assets its authorities _assumed_ might have been going to be stolen (British banks were doing a lot of stealing then). Britain’s fatal error, legally, was not waiting, not giving Landsbanki and Iceland time or opportunity to do either right or wrong.

    Because Britain snatched property it had no legal right to, at a time it had no legal reason or legitimate excuse to, Britain incurred responsibility and liability. Responsibility and liability for all hurts, harms and damages consequent from its actions and from consequences of those. Britain’s liabilities include for depositors’ lost deposits, in full, not to EU limits, because Landsbanki’s destruction was not a bank failure. It was a peremptory slaughter of a standing institution (as with murder, it does not matter if the victim had cancer and only a month to live or not).

    Mike, Sigrún and all,
    The case of Kaupthing Singer and Friedlander is significantly different from Landsbanki, because KSF was a British entity, and so does not have the sovereign insulation Landsbanki had.

    Whatever the legislative scope of the freezing order/terror legislation, because other EU nations recognized it to have authority that extended to them (which was defined product of treaty) and acted against Iceland per their good faith beliefs the use of the act extends Britain’s liability for those effects.

    There certainly is no shortage of “Emergency Measures” that came into effect with the financial crisis. Some have blessedly local effects (as the Icelandic) and some have effects that multiply effects.


    16 Apr 11 at 12:46 am

  8. D.L. Grogh,

    I admire your sophistry – if I ever need someone to prove that “black is white” I’ll call upon you.

    PS I suggest you go and do some work on the legal status of assets held by banks and investment organisations. I’ll give you a starting point: in the Icelandic legislation look up the legal definition of a “bank” – and also a “deposit” while you’re at it.

    Mike (UK Nordic analyst)

    16 Apr 11 at 9:54 am

  9. Another response to RL Dogh,

    Life is too short to correct all the errors in your post. I will look at one paragraph. You write:

    “But Britain did not give Landsbanki a chance to perform or not perform. Britain jumped the gun.”

    Er? Landsbanki had been given six months to perform. The British authorities made suggestions to Landsbanki, the FME and Sedlabanki in May 2008 to bring the Icesave deposits under UK control – if that had happened Iceland would never have been presented with the Icesave bill. The idea was to convert the Landsbanki branch into a UK bank, although still a subsidiary of Landsbanki. The reason was to ensure the safety of British deposits in the bank. The Icelandic parties rejected that suggestion – Landsbanki wanted to begin transfering the Britsh money out of the UK and into Iceland.

    “Britain attacked an entity of another nation”

    It was a matter of self-defence: the “attack” was perpertrated by a foreign bank on British savers, with the collusion of the Icelandic financial authorities.

    “when it had no justification yet to even suspect that entity of wrongdoing, or intent to wrongdo.”

    Er? The wrong doing had been going on a number of months and reached a peak over the weekend in October 2008. Suspect? It was known.

    “The facet is, Landsbanki’s moving its”

    its? Look up banking law.

    “assets to Iceland, where its headquarters were, and Iceland’s securing all Icelandic assets to maintain them suggest that Landsbanki and Iceland recognized a need for all the capital they could secure arising”

    Exactly. And this was not allowed by anyone’s rules. Landsbanki and the Icelandic authorities knew this to be the case. How do I know? I was there in the spring of 2006 when they were told – in no uncertain terms that what they were proposing (at the time) would not help them at all. It is in black and white in this report written at the time:

    I refer you to page 9. Here are some quotations that might help orientate you about what is, and isn’t, possible with overseas subsidiaries and branches:

    “International subsidiaries do not help in distress”

    “the benefit of holding that subsidiary is otherwise
    useless in a distress event.”

    “It has been made abundantly clear from our conversations with the Icelandic banks, if we didn’t already know, that they have almost no ability to
    bleed liquidity from their foreign regulated subsidiaries, even if they wanted or needed to.”

    “disclosing consolidated cash/liquid asset positions is meaningless since the parent bank creditors have no call on subsidiary assets. This fact seems to have been lost in recent commentary, and also
    seems to be conveniently ignored by bank management.”

    By your views RL Dogh it is still lost on Icelanders that you simply cannot do what Landsbanki did. You are still ignoring that the Icelandic banks were unable to call upon their assets held overseas – and certainly not when those assets were deposits.

    Mike (UK Nordic analyst)

    16 Apr 11 at 4:30 pm

  10. […] a financial analyst who has been commenting on an earlier log, ‘Can Iceland just pay without any agreement?’ has posted a report by Barclay Capital […]

  11. Mike,
    You appear to have misunderstood which elements in the Landsbanki in England Saga I was referring to. I will try to separate to clarify:

    Landsbanki was an Icelandic entity. It opened branches in Britain and offered British savers an option, to invest deposits in an Icelandic bank, receiving interest at rates such as they were used to thirty years ago, in the 1980’s, when there was competition for deposits amongst British banks, building societies, etc., before the banks went crooked in Britain and lowered rates, by common consent so all paid savers below inflation rates. British banks had been profitable then, they were, of course, more profitable for cheating savers. Landsbanki offered competition. The British financial sector did not like this competition, but British savers did.

    What Landsbanki offered the British savers was an offshore-account, one in an Icelandic bank, accessible via onshore, in Britain, branches, and, with Icesave, via internet. Landsbanki was located in Iceland, instead of Isle of Man or Jersey, and offered the small saver what large savers had access to before.

    The British FSA, at the behest of British financial interests, took exception to the Landsbanki business model. The FSA wanted Landsbanki branches in Britain to be “British”, as Kaupthing had become when it, in Britain, began doing business as Kaupthing Singer and Friedlander. This gave Britain’s FSA authority to more directly regulate Kaupthing, and the FSA wanted that same level of authority toward Landsbanki.

    The authority of Britain’s FSA does not extend beyond the borders of Britain. When Britain’s FSA gave Landsbanki any order, including “six months to perform”, the order necessarily, because Britain’s FSA does not extend beyond British borders, carried an alternative: Or stop doing business on British soil.

    The difference between Landsbanki and Kaupthing Singer and Friedlander was that that alternative would mean ‘stop doing business’ to KSF, but would mean ‘go back to Iceland’ to Landsbanki.

    Landsbanki made no secret it was an Icelandic bank. Icesave savers knew their Icesave accounts were Icelandic bank accounts. The FSA did, too. Icesave depositors, “freeborn Englishmen”, chose to deposit in an Icelandic bank instead of a British bank. British banks had cheated savers enough they had a bad reputation with savers.

    Britain’s FSA sought to push Landsbanki out of Britain under pretext of guarding the interests of Landsbanki savers, claiming they were not sufficiently secured. They gave Landsbanki whatever time to add substantially to its capitalization, an amount that it changed from time to time, apparently to assure Landsbanki could not comply, or to divide itself, putting its deposits into Heritage, a British bank Landsbanki owned and not taking more deposits, itself. Dividing itself would make Landsbanki smaller than some of its loan contracts required, and so would trigger calls on those loans. The FSA thus gave Landsbanki a ‘Roman Imperial Choice’, one Caligula was fond of offering, to kill itself, by dividing itself, or to be executed by the FSA for non-compliance.

    But, being an Icelandic entity, Landsbanki had the third option: Pull out of Britain. Go back to Iceland. Its British depositors’ Icesave accounts were already on-line, meaning they could be accessed in Iceland as easily as in Britain. Landsbanki could make British bank Heritage its correspondent bank, to pay out cash and so forth on its behalf. This is commonly done in the banking world.

    Landsbanki’s depositors’ accounts were already offshore accounts, legally, by virtue of Landsbanki being Icelandic.

    Landsbanki had legal right to carry its depositors’ deposits to Iceland. This is where we start:

    You say Britain’s FSA had given Landsbanki six months to conform or get out. Landsbanki could not conform, it had to get out. It began to get out. It began to move its depositors’ deposits.

    The deposits Landsbanki was moving were its deposits, entrusted to it, as an Icelandic entity, by “freeborn English” depositors.

    The clock started when Landsbanki began removing itself from Britain, moving its assets, including deposits it held per contracts with British depositors who had entrusted those to it. At the point that Landsbanki moved depositors’ deposits entrusted to it out from Britain, the British FSA ceased to have direct authority toward Landsbanki and its operations. With Landsbanki’s retreat responsibility for Landsbanki reverted to Iceland. Britain’s FSA remained concerned with the safety of British depositors’ deposits in Landsbanki, but no longer directly. From thenceforward its liaison was to be through Iceland’s counterpart.

    If Britain’s FSA had concerns then its obligation was to contact its counterparts in Iceland and express them.

    The next step would be to inform (both nations could order Landsbanki to inform) Landsbanki’s British depositors of Landsbanki’s removal from physical presence in Britain to become an entirely offshore bank.

    Britain’s FSA could then order Landsbanki, with its Icelandic counterparts concurring, to return all deposit moneys to all British subjects demanding their money. This Landsbanki would be obligated to do. And Iceland would be obligated to see it done. Iceland would have to assure the money to do the repaying, even if it had to borrow on Landsbanki’s behalf.

    Do you see? The start time was the time of the deadline set by Britain’s FSA, when Landsbanki had to either comply or pull out. The six months before that was decision-making grace. Neither that time nor any suggestions, threats, or anything else the FSA offered before is relevant.

    Iceland would have become responsible for Landsbanki’s depositors’ deposits, as Britain is today claiming it should be, once Landsbanki and its assets were back in Iceland, under its authority. THEN Britain could have hovered as Landsbanki depositors demanded their money, and the instant one was not paid, Britain could have raised hell, and if Iceland had then told it to “sod off”, it could have taken action, legally, against Landsbanki and Iceland.

    To understand all of this you have to, of course, understand that we are discussing private property. The depositors and Landsbanki were private parties, and the deposits were private property. Nothing belonged to the British State, or to the Icelandic State. Both states were only authorities.

    What Britain did was steal the private property assets and moneys that Landsbanki needed to have at hand to repay to depositors if they demanded it. Britain then told Iceland, instead of Landsbanki, it, Iceland, not Landsbanki, was to repay to depositors the money Britain had stolen from Landsbanki, while it, Britain, held that money. Then Britain paid the depositors from its public moneys, while still holding the depositors’ and Landsbanki’s, and then told Iceland it had made that payment was on its behalf as a “loan” to it, at interest. This was equivalent to stealing a person’s wallet and then calling his mother and telling her you are lending him bus-fare, at interest, and are looking to her to repay you the loan and interest.

    As I said, for Britain to have a legal leg it would have had to let Landsbanki, back in Iceland, fail to satisfy a British depositor first. Then it would have needed only one, whereupon it could have demanded Iceland make the failure to repay good, on behalf of its national, and to guarantee all British nationals’ deposits entrusted to Iceland’s Landsbanki, per EEA treaties and so forth.

    The business has nothing to do with subsidiaries, and nothing to do with British assets. All the assets were Landsbanki’s or Landsbanki depositors’. Britain’s FSA was supposed to be the policeman keeping the neighborhood peace, doing nothing unless a dispute arose, ideally, by presence alone assuring all parties behave.

    Note that Kaupthing, not under any demand by the British FSA at that time, was free to use its fiscal assets as it wished, including to loan in Iceland, including to Landsbanki, if need arose, to return deposits to Landsbanki and Icesave depositors if they wanted their money out on learning that their onshore offshore bank was going completely offshore.

    This would have been one of those Icelandic “cross-lending” activities that Icelanders proved adept enough at they were able to survive market attacks that “by rights” should have sunk them.

    In Iceland there is a museum where you can see fishing gear that are not acceptable for fishermen to use in normal fishing, but that they found legitimate to use defensively some years ago. Market-place assaults and fishing-grounds assaults are just different kinds of assaults, which require different normally avoided defensive measures.

    Cross-lending, share-shuffling and parking are not acceptable practices in normal market situations, but when one is being attacked they are legitimate defensive measures.

    If you study market warfare you will learn how they are used to blunt and turn assaults on shares and share-prices. If you study market statistics and records from 2005 through 2008, you can see the Icelandic banks and other interests in Britain were attacked, and weathering the attacks. There is fair evidence that the “emergency” that prompted Britain to destroy Kaupthing with its ’emergency measure’ was that it appeared to be positioning to be able to cross-lend to aid Landsbanki, and Sedlabanki, if needed, to weather a run by unhappy Icesave depositors.

    To tell the truth, I don’t think there would have been that many Icesave depositors unhappy to have their savings fully offshore. Some of the municipal depositors might have had to give up the old-fashioned interest rates for regulatory restraints, and so become victims again.


    16 Apr 11 at 10:37 pm

  12. Mr. Dough,
    Mike has, with a few succinct phrases, (…and unlike you, without arrogance or condescension), demolished your 3,000+ word ‘argument’.

    Please put down the shovel. Your hole’s deep enough as it is.



    16 Apr 11 at 11:55 pm

  13. That’s fantastic Dogh. Are you still listening to your banker?

    You haven’t evidenced any of your claims, and there are a lot of them, so let’s just pick the last:

    “There is fair evidence that the “emergency” that prompted Britain to destroy Kaupthing with its ‘emergency measure’ was that it appeared to be positioning to be able to cross-lend to aid Landsbanki, and Sedlabanki, if needed, to weather a run by unhappy Icesave depositors.”

    Cite? I’ll especially enjoy seeing how Kaupthing was positioning to aid the Sedlabanki by accepting a $500m loan from them.


    17 Apr 11 at 10:33 am

  14. A Correction to my 16 Apr 11 posting:
    I made a significant error in my “separate and clarify” explanation, in the 18th paragraph, where I wrote, “Britain’s FSA could then order Landsbanki…” Because Landsbanki would have been out of Britain then,, and Britain’s FSA’s authority ends at Britain’s borders, Britain’s FSA coould not “order”. Correctly, it would have demanded. Its counterpart Icelandic authority, the authority having authority to order Landsbanki, would have then issued the order. It would have had to for EEA treaty stipulations and international banking agreements. And Landsbanki, for those, too, would have been obligated to comply. And Iceland’s Sedlabanki, and Iceland would have been obligated, by the same treaties and agreements, to assure repayment of all demanding British depositors’ deposits.

    The here described Icelandic authority actions were what Britain’s precipitate actions and invocation of its “emergency measure”, preempted. The preemption prevented Landsbanki or Iceland being able to commit any violations that would have justified Britain taking action.

    I am sorry if my attempts to explain read as ‘argument’ to you. I took up my “shovel” for the basic fact at law that one must allow perpetrators to commit a crime before one may prosecute them for committing the crime, because Britain’s having not done so, having, instead, presumed the crime and acted to commit a greater crime, appeared to be being lost in all the smoke and dust, and the flashing of mirrors and riding mad on a witch-hunt against the Icelandic bankers (who evidences are beginning to suggest were, in fact, among the honest).

    The facts are, and there is no arguing them, Britain, not those bankers, brought Iceland to crisis, and it is Britain who owes, to Iceland. I don’t mean to be arrogant, but look behind the smoke and mirrors.

    With this I put down my “shovel”. I hope I have dug enough of a hole in the dunghill. I think that if you spread what I’ve dug on the fields the referenda have opened, Iceland may grow prosperously again.


    17 Apr 11 at 9:35 pm

  15. Bromley86,
    You ask, “Are you still listening to your banker?”

    Does it show?

    In answer to your question about banking and banks’ positionings, “Positioning in banking is complex. positionings are not simple or linear. They are sequential, cross-sequential and consequential.” and, “He should start with some books and reading.”

    I only know a bit about finance and law, and not enough about both. For instance, I do not know if Holland would have to sue through Iceland, or could co-party with Iceland to recover what it is out from Britain. If it could either would depend on its relationship, if any, with Britain in Britain’s actions that destroyed Landsbanki and Kaupthing, if it was a conspirator (pre-agreement it would get benefits) or only a beneficiary (received after the fact from Britain), and, of course, if there is more law than corruption in the EU, or more corruption than law. My perception is there is more corruption, and the EU is, legally, only a shell, or fiction, an apparent entity without, when anything involving wrongdoing by a powerful nation-member is in contest, independent presence or legitimate compulsory power.


    17 Apr 11 at 10:48 pm

  16. The story about the FSA, Landsbanki and Kaupthing is pretty thoroughly recounted in the SIC report, now 1 years old. It shows clearly how the two banks did everything they could to evade FSA’s action. It also shows, as has a later report on Landsbanki’s auditing, that the two banks were probably no longer a going concern in late 2007. To claim that the UK was responsible for the demise of the Icelandic banks doesn’t in any way fit the facts as spelled out in the SIC report.

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