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0 pointsrunarberg5y ago0 comments

12 Years since, and I still don’t understand why the UK went after Iceland for reparations. Landsbanki was a private bank operating in the UK, and one of the owners Björgólfur Thor Björgólfsson is still doing business in the UK, and is now among the top 100 billionaires in the UK (even though he caused a 6 billion euro damage that the UK taxpayers paid).

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zajio1am5y ago

As i understand it:

In EU/EEA there are are bank regulations specifying that banks may operate on a common market under supervision of regulating body where the bank is registered. As Landsbanki UK was branch office and not subsidiary company, it falled under Iceland regulation.

These regulations also require that there is a deposit guarantee scheme for protection of depositors up to 100k EUR, based on country where bank is registered.

So when Landsbanki crashed, all its depositors were entitled to deposit guarantee from Iceland deposit guarantee scheme. But this system cannot handle crash of such size. After that, Iceland government decided to reimburse icelandic depositors, but not offshore depositors (although both have the same claims after icelanding deposit guarantee system, the local ones have political power).

To avoid political windfall, UK (and AFAIK also Dutch) government decides to reimburse their local depositors and get reparation from Iceland based on Iceland government's failure of setup proper deposit guarantee scheme / sufficient regulation, which was condition for allowing its banks access to UK/EU banking market.

runarbergOP5y ago

Then there are failures at multiple levels here:

a. Icelandic government failed in allowing a bank registered in the country to venture in a scheme that scales to such high amounts, given they need to guarantee their failure.

b. The EU/EEA failed in not taking in account the size of the host country economy.

c. The UK failed in not challenging this private venture at the EU/EEA level while it was happening. As they should have known Iceland was not equipped to dealing with a potential failure. The UK should have warned it's citizens as well.

d. The EU/EEA fail in not holding the people responsible for the damage caused by owners of private banks. Both Iceland and the UK share this failure since they can seek reparations on a national level.

Note that none of these failures are the fault of the UK nor the Icelandic taxpayers. Focusing the following court cases on those was a mistake. Sheltering the obvious villain of this disaster was another mistake. Allowing that villain to carry on and not pay any damage is ludicrous.

iso16315y ago

In the runup to the crash, there were a lot of new adverts on the tube about amazing high interest rates with unknown Icelandic banks - far higher than the rates given by normal banks.

I was always told if something is too good to be true, it usually is.

Not only did lots of regular people put their money in this bank, a lot of public authorities did too, and the desposit protection doesn't really help Kent council (which lost £50m), or TFL (£40m), or whatever.

UK governments gambled, with big promises, and lost.

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