Icelandic bank report to slate regulators and ministers

 

A DAMNING account of Iceland’s failure to protect ordinary depositors – including hundreds of thousands in the UK – who entrusted their savings to online bank Icesave will be published today by a specially convened truth commission, set up in the wake of Iceland’s banking meltdown 18 months ago.

A 2,000-page report into the system-wide financial collapse in October 2008, commissioned by Icelandic MPs, will contain detailed chapters on both the Icesave affair and Iceland’s pitiful depositor guarantee fund. Former ministers and regulators responsible for ensuring deposit guarantees were sufficiently robust are expected to face severe criticism.

The report is expected to portray large elements of Iceland’s overheated stock market in the years before the meltdown as operating with few of the regulatory controls appropriate to a tiny island economy with its own currency.

The meltdown saw domino failures of Iceland’s three largest banks, Kaupthing, Landsbanki and Glitnir, as well as the collapse of a host of investment empires, the best known of which in the UK was Baugur, until recently one of the largest and most prolific investors in British high street chains.

The crisis forced the island to seek emergency loans from the International Monetary Fund and others.

A refusal in October 2008 by the effectively bankrupt Icelandic government to underwrite deposit guarantees to overseas savers with Icesave led British chancellor Alistair Darling to step in and offer full guarantees for 229,000 British savers. Subsequent efforts to force Iceland to reimburse British treasury coffers were derailed last month when Icelandic president Olafur Grimsson called a surprise plebiscite which rejected agreed repayment terms. Icelandic ministers are now struggling to find new terms acceptable to both Britain and to Icelandic voters.

Pall Hreinsson, the supreme court judge who chairs the truth commission, has said of his report: “No committee has ever had to bring to its nation such bad news.” He has suggested that a national holiday be declared so all Icelanders have time to read the report.

Some Icelandic media reports have suggested the truth commission report could lead the island’s parliament, the Althingi, to dust off long-dormant powers to punish misdemeanours in public office.

Judge Hreinsson is expected to criticise the close relationship between these banks and their largest clients; in many cases these clients held major ownership interests in the same banks. He is also expected to point to significant but isolated instances of suspected criminality.

Some of the evidence has already been shared with Iceland’s special prosecutor Olafur Hauksson. A number of criminal investigations have already started in Iceland and Britain.