Prime Minister Jóhanna Sigurdardóttir said at a press conference on Tuesday that she does not comprehend why the Central Bank and Financial Supervisory Authority (FME) didn’t form an action plan for the government last year to save the economy.
“I believe supervisory institutions didn’t fulfill their role,” Sigurdardóttir said.
Prime Minister Jóhanna Sigurdardóttir. Photo by Geir Ólafsson.
After presenting a report to three ministers on the poor condition of the banks and an unfortunate outlook in foreign credit markets in February 2008, the Central Bank lowered the reserve requirement in March and, in May, it declared the financial system fundamentally solid, Fréttabladid reports.
The lowering of the reserve requirement also included foreign subsidiaries of the Icelandic banks and contributed, for example, towards the expansion of Icesave, Landsbanki’s online savings unit in the UK and the Netherlands.
When Landsbanki was nationalized in October last year, the Icelandic state became partly responsible for the Icesave deposits, which caused a heated debate between Iceland, the UK and the Netherlands.
The Central Bank’s report was written after a meeting with financial research companies and private banks in London in February 2008, who expressed deep concern about the Icelandic banking system.
Moody’s Investors Service was especially concerned about Icesave. Yet, despite their concern, Icelandic authorities didn’t prevent Landsbanki from opening the Dutch Icesave unit in May last year.
The then Prime Minister Geir H. Haarde told RÚV on Monday that “it hadn’t been easy” to react to the report when it was presented to him in February.
A few weeks later, Haarde and the then Foreign Minister Ingibjörg Sólrún Gísladóttir traveled to New York and Copenhagen to promote the Icelandic banks.
When asked about her opinion of these promotion initiatives, PM Sigurdardóttir, who was minister of social affairs at the time, would not comment apart from saying, “They decided to do it this way.”
Sigurdardóttir’s main criticism is aimed towards the Central Bank and the FME for having failed to react to the warning they received and not forming an action plan for the government.