The now defunct Glitnir Bank provided loans to ten children, aged one to 17, to purchase capital stock in Byr Savings Bank when its capital stock was increased by ISK 30 billion (USD 241 million, EUR 150 million) two years ago.

The headquarters of Glitnir in Reykjavík. Copyright: Icelandic Photo Agency.

Their parents requested permission from the Reykjavík District Commissioner. Permission wasn’t granted but Glitnir handed out the loans anyway, ruv.is reports.

When Byr’s capital stock was increased, Glitnir sent letters to everyone who already held shares in the savings banks, both children and adults, asking whether they would like to increase their shares.

The loans offered by Glitnir for this purpose were down-payment free bullet loans with collateral in the shares themselves. The loans were worth between ISK 2 and 24 million (USD 16,000 and 193,000, EUR 10,000 and 120,000).

Eyrún Gudmundsdóttir, divisional manager at the District Commissioner's Office, explained that the loans were not approved because no one was able to demonstrate that it was in the children’s interest to take the loans.

It was considered risky for the children to take such high loans and it was therefore not deemed justifiable. Gudmundsdóttir said permission from the District Commissioner is required by law and therefore the bank violated the law by granting the loans.

Since the loans were granted outside the frame of the law, they cannot be collected, Gudmundsdóttir explained.

She added she doesn’t know of any cases where a district commissioner has permitted loans to children because of the purchase of shares or stock capital.

Director of the Government Agency for Child Protection Bragi Gudbrandsson told RÚV that this case does not fall under child protection in the legal understanding.

However, he feels that it demonstrates a serious lack in ethical judgment on behalf of the parents. Glitnir is equally responsible, Gudbrandsson said, adding that this case symbolizes the materialism which used to characterize Icelandic society.

The Financial Supervisory Authority is responsible for the supervision of the work methods of banks, including inner supervision.

Director of the Supervisory Authority Gunnar Andersen told RÚV that this case could therefore justify an investigation, since it is bound to be in breach of the law to lend money to minors without permission from the District Commissioner.

CEO of Byr Ragnar Gudjónsson said Glitnir had been entrusted with complying with rules and regulations.

Már Másson, information officer of Íslandsbanki (previously Glitnir), said this case is considered serious within the bank. Glitnir had made a mistake and Íslandsbanki will make sure that a mistake like this will not be made again.