Ireland and Iceland in Crisis C: Iceland's Landsbanki Icesave

Yale Program on Financial Stability Case Study 2014-4C-V1

15 Pages Posted: 20 Mar 2015

See all articles by Arwin G Zeissler

Arwin G Zeissler

Yale University - Yale Program on Financial Stability

Thomas Piontek

Government of the United States of America - Office of Financial Research

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Date Written: December 1, 2014

Abstract

At year-end 2005, almost all of the total assets of Iceland’s banking system were concentrated in just three banks (Glitnir, Kaupthing, and Landsbanki). These banks were criticized by certain financial analysts in early 2006 for being overly dependent on wholesale funding, much of it short-term, that could easily disappear if creditors’ confidence in these banks faltered for any reason. Landsbanki, followed later by Kaupthing and then Glitnir, responded to this criticism and replaced part of their wholesale funding by using online accounts to gather deposits from individuals across Europe. In Landsbanki’s case, these new deposits were marketed under the name “IceSave” and legally held in branch offices in the United Kingdom and the Netherlands. When Landsbanki failed in October 2008, the obligation to repay depositors fell upon Iceland’s deposit insurance fund, not upon the British and Dutch deposit insurance funds. However, the Icelandic fund did not have nearly enough money to repay all eligible depositors in the three major Icelandic banks, all of which had failed, so the Icelandic government made the controversial decision to repay only domestic depositors.  

Keywords: Systemic Risk, Financial Crises, Financial Regulation

JEL Classification: G01, G28

Suggested Citation

Zeissler, Arwin G and Piontek, Thomas and Metrick, Andrew, Ireland and Iceland in Crisis C: Iceland's Landsbanki Icesave (December 1, 2014). Yale Program on Financial Stability Case Study 2014-4C-V1. Available at SSRN: https://ssrn.com/abstract=2579078 or http://dx.doi.org/10.2139/ssrn.2579078

Arwin G Zeissler

Yale University - Yale Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Thomas Piontek

Government of the United States of America - Office of Financial Research ( email )

717 14th Street, NW
Washington DC, DC 20005
United States

Andrew Metrick (Contact Author)

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States
(203)-432-3069 (Phone)

HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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