ESA: Iceland in Breach of Deposit Guarantee Directive Skip to content

ESA: Iceland in Breach of Deposit Guarantee Directive

icesave-logoESA, the EFTA Supervision Authority, concluded yesterday that Icelandic authorities violated the Deposit Guarantee Directive in failing to pay minimum compensation to Icesave depositors when Landsbanki collapsed and will hence take the Icesave dispute to the EFTA Court.

ESA’s statement reads as follows:

“According to the directive, Iceland was obligated to ensure payment of a minimum compensation of EUR 20,000 per depositor after Landsbanki and its Dutch and British branches, called Icesave, collapsed in October 2008. More than three years after the bankruptcy of the bank, Iceland has still not complied with its obligation.”

The statement also mentions ESA’s formal letter of notice in May 2010 where the Icelandic government was given the opportunity to justify its position.

“After carefully examining Iceland’s reply in May 2011, the authority issued a reasoned opinion on 10 June, 2011. The purpose of this reasoned opinion was to give Iceland a final possibility to comply with the directive. Iceland has now replied to that reasoned opinion, but remains in breach.”

The statement then quotes ESA president Oda Helen Sletnes, who reasons that, “The authority’s position is unchanged. Iceland must comply with its obligations under the EEA Agreement. It must ensure compensation of all depositors under the conditions prescribed by the Deposit Guarantee Directive and without discrimination.”

The statement says that the ESA does take notice of the fact that the bankruptcy estate of Landsbanki has started to pay out the claims of depositors. “However, according to the information provided by Iceland, these claims will not be paid in full before the end of 2013.”

The EFTA Court will only determine whether or not Iceland fulfilled its obligations. A charge will be issued shortly and the Icelandic government will have an extension to hand in a statement. Court proceedings will probably take place in late 2012, reports.

If the EFTA Court rules in Iceland’s favor the Landsbanki’s assets will go to claimants but they will not receive any interest. The court may not reach its decision until early 2013.

However, if the verdict is not in Iceland’s favor, the government must consequently negotiate on payments and interests and would have a considerably worse position to negotiate than when the last Icesave agreements were reached in December 2010.

According to RÚV’s sources, it is unlikely that British and Dutch authorities would agree to similar terms as in the last agreement which was rejected in a national referendum in April 2011 and might demand significantly a higher interest rate than the 3.2 percent agreed upon.

In the worst case scenario, the interests could amount to ISK tens or hundreds of billions, RÚV’s sources believe.

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