How Kaupþing Bank Got EUR 500 Million Loan Skip to content

How Kaupþing Bank Got EUR 500 Million Loan

On October 6, 2008, the decision was made to provide Kaupþing bank with a EUR 500 million loan (the equivalent of ISK 75 billion back then), even though it was thought unlikely that the loan would ever be repaid, according the testimony of a former manager at the Central Bank.

How the decision was made for the Central Bank of Iceland to lend Kaupþing bank EUR 500 million, right before the Icelandic banks collapsed, has long been veiled in mystery. Last night, the news analysis program Kastljós attempted to shed some light on that matter.

The program quoted the 2012 testimony of Sturla Pálsson, who was a high ranking offical at the Central Bank in 2008. The EUR 500 million loan comprised a large part of the Central Bank’s reserves. It was given against collateral in the Danish bank FIH.

According to Sturla, on October 6, 2008, Davíð Oddsson, the governor of the Central Bank of Iceland at the time, called PM Geir Haarde from Sturla’s phone, knowing that calls from that phone were recorded, but not those from Davíð’s. PM Geir Haarde was unaware the conversation was being recorded. A transcript of part of the phone conversation has just been made public. Davíð has maintained that the phone call was accidentally recorded.

That same day, October 6, Alþingi passed an emergency law, and the banks Glitnir and Landsbankinn collapsed. Kaupþing bank collapsed three days later, two days before the EUR 500 million loan was to be repaid. The FIH bank, which was a collateral for the loan, was sold by the Central Bank of Iceland in 2012, at a loss of ISK 35 billion.

Davíð Oddsson maintains it was the will of the government to provide the loan to Kaupþing, but according to the law, providing it was the decision of the Central Bank. RÚV reports that the government or any single minister did not have the authority to order the Central Bank to provide such a loan.

Sturla’s testimony suggests that the loan was provided although Davíð believed the chances of having it repaid were minimal. His testimony also suggests that the decision to provide the loan was Geir’s, not the Central Bank’s. Still, that contradicts official declarations made by the prime minister at the time.

In the phone conversation, Davíð said, “Today we can scrape together 500 million Euros, and then, of course, we have reached the limit. Can then help Kaupþing for some four or five days, but then we can’t help Landsbanki, too, you see.”

Sturla testified that following this conversation, Davíð called the CEO of Kaupþing, Hreiðar Már Sigurðsson, to tell him Kaupþing would receive help.

According to RÚV, the Central Bank of Iceland plans to publish a report about events leading up to the providing of the EUR 500 million loan and its consequences. The report will furthermore attempt to explain how the Danish bank FIH was sold. The Central Bank can, however, not provide infomation on when the report will be published. Central Bank Governor Már Guðmundsson announced more than a year ago, in an interview with RÚV, that such a report would be made. He told RÚV today that the making of the report has been delayed, due to the busy scedules of those knowledgeable about the matter.

Geir Haarde sent Kastljós a written statement following last night’s broadcast. In the statement, he claims it is far from the truth that the decision to provide the loan to Kaupþing was his, and he writes that he knew that according to the law, the power to provide such a loan was the Central Bank’s, not his. Geir also denies having promised Kaupþing the loan.

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