Karlo Jännäri, one of Finland’s most prominent banking experts, presented yesterday a report on regulations and banking supervision in Iceland, advising Iceland to follow Finland’s example: join the European Union and adopt the euro.
The European Central Bank in Frankfurt, Germany. Copyright: Icelandic Photo Agency.
That would solve the problem that comes with having a small and fluctuating currency, Jännäri argued, according to Fréttabladid.
RÚV reported last night that the Icelandic króna has depreciated so significantly in recent weeks that it has become equally weak as in January, before the short-lived period of appreciation began.
Jännäri concluded that the collapse of the banking system was caused by a mixture of poor banking management, poor monetary policy and bad luck.
However, Jännäri added that the regulatory environment in Iceland is similar to that in the EU and has similar faults.
In Jännäri’s view, the hands of the Financial Supervisory Authority (FME) were tied to a certain extent because of a overly tight control.
He recommends that when Icelandic authorities review the legal framework, they maintain the increased authority of the FME, which was established with the emergency law passed in October last year.
Minister of Business Affairs Gylfi Magnússon said Jännäri’s suggestion will be considered.
Jännäri believes a colossal banking system can hardly be rebuilt in Iceland. “Not with the króna as currency and it could even prove difficult with the euro because of uncertainty whether the European Central Bank is in fact a loan granter as the last resort for member states.”
Ragnar Haflidason, acting director of the FME, said Jännäri’s report gives a realistic picture of how thinks occurred in Iceland. “And the FME doesn’t look too bad, although, of course, various aspects were criticized.”
Haflidason speculated whether the FME and other supervisory institutions could have been stricter regarding the banks and encouraged them to sue if they thought they were being mistreated.
Jännäri pointed out that such measures had been undertaken elsewhere. “But there is no tradition for that in Iceland,” Haflidason added.
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