The Foreclosure Crisis in America Makes Iceland Shiver

January 9th, 2009

The chain reaction of the foreclosure crisis in America has made Iceland shiver. It could very well have the special distinction of becoming the first instance of “national bankruptcy”. The currency of Iceland has lost its value by half and the banks are collapsing like ninepins under the weight of heavy debts.
The biggest bank of Iceland got an emergency loan from Sweden recently. Britain too came forward and agreed to guarantee its deposits in an online unit of an Icelandic bank. But despite these measures the financial mayhem in this small Nordic country is showing no signs of abatement.

Iceland has of late taken over the second biggest bank of the country, fixed the rate of exchange of its falling currency and also requested Russia for a loan (4 billion euros). These were some of the steps taken to put a brake on its collapsing economy.
Emergency laws have also been introduced that gives the government absolute powers to take over firms, put brakes on board authorities and summon meetings of shareholders.
Prime Minister Geir H. Haarde openly took to task European countries for not coming forward to help in this time of crisis. Sweden immediately responded offering liquidity assistance to the Swedish branch of Icelandic bank, Kaupthing. The loan amounted to $702 million. The central bank of Sweden believed Kaupthing was solvent but was plagued by a short-term liquidity crisis. This could however have wider negative repercussions. In a statement the bank said, “To safeguard financial stability in Sweden and ensure the smooth functioning of the financial markets, the Riksbank has therefore decided to grant liquidity assistance to Kaupthing Sverige.”

Britain too made positive gesture. Alistair Darling the Treasury chief said that the deposits of Britishers with Icesave. It is an online outlet of Landsbanki that has been nationalized by the Icelandic government.
Iceland has prevented clients, which included many thousands in UK, from taking out money from their respective accounts. British regulators are apprehending that most probably bankruptcy will be filed.
As part of the measures taken up by Britain to prop up support the ING Direct UK announced that it is purchasing over $5.3 billion of deposits that have been held by 180,000 Britishers with two other banks based in Iceland – Kaupthing Edge and Heritable Bank. The latter Landsbanki owns the two banks.

Sweden and Britain have jumped in to save Iceland, as they are afraid of the disastrous results if Iceland’s financial system is allowed to collapse following the foreclosure crisis originating across the Atlantic.
Via