Abstract

http://ssrn.com/abstract=2016295
 


 



Global Economies, Regulatory Failure, & Loose Money: Lessons for Regulating the Finance Sector from Iceland's Financial Crisis


Andrew P. Morriss


University of Alabama School of Law; PERC - Property and Environment Research Center; George Mason University - Mercatus Center

Birgir T. Petursson


RSE - Centre for Social and Economic Research

March 5, 2012

Alabama Law Review, Vol. 59, 2012

Abstract:     
Iceland was the first developed economy to fall into crisis in 2008, with the collapse of its banking sector, currency value, and economy. The collapse threw Iceland into a political crisis and provoked a serious international dispute between Iceland and Britain and the Netherlands over responsibility for the failed banks. Prior to 2008 Iceland had been treated as the poster child for deregulation; since 2008 it has been held up as the poster child for the dangers of financial liberalization. Neither is accurate. Rather, Iceland presents a cautionary tale about the inter-relationships between fiscal and monetary policy and regulatory measures. Excessive liquidity fostered by central banks around the world, expansionary fiscal policies in Iceland, and inadequate understanding of fundamental economic linkages created conditions under which capital flooded Iceland and overwhelmed its financial institutions. Regulatory failures at the EU and Icelandic levels meant regulatory measures such as central bank interventions and deposit insurance exacerbated problems rather than correcting them. This paper explores those relationships, uncovering connections made visible by both Iceland’s relatively small size and the comprehensive parliamentary investigation into the crisis. It concludes that regulators need to focus attention on enhancing market-feedback mechanisms rather than on attempting to steer economies if they are to avoid “the next Iceland.”

Number of Pages in PDF File: 92

Keywords: Iceland, financial crisis, central banking, deposit insurance, monetary policy

Accepted Paper Series


Download This Paper

Date posted: March 6, 2012 ; Last revised: March 27, 2012

Suggested Citation

Morriss, Andrew P. and Petursson, Birgir T., Global Economies, Regulatory Failure, & Loose Money: Lessons for Regulating the Finance Sector from Iceland's Financial Crisis (March 5, 2012). Alabama Law Review, Vol. 59, 2012. Available at SSRN: http://ssrn.com/abstract=2016295 or http://dx.doi.org/10.2139/ssrn.2016295

Contact Information

Andrew P. Morriss (Contact Author)
University of Alabama School of Law ( email )
P.O. Box 870382
Tuscaloosa, AL 35487
United States
PERC - Property and Environment Research Center ( email )
2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States
George Mason University - Mercatus Center ( email )
3401 N. Fairfax Dr.
Ste. 450
Arlington, VA 22201-4433
United States
Birgir T. Petursson
RSE - Centre for Social and Economic Research ( email )
Laekjargata 2
Reykjavik, 101 R
Iceland
HOME PAGE: http://www.rse.is
Feedback to SSRN


Paper statistics
Abstract Views: 900
Downloads: 167
Download Rank: 99,861

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.735 seconds