Iceland Crisis Report: Central Bank Made Many Mistakes Skip to content

Iceland Crisis Report: Central Bank Made Many Mistakes

By Iceland Review

According to the report published by the Special Investigation Commission (SIC) on Monday, the Central Bank of Iceland made a series of mistakes before the banking collapse in October 2008.

The Cental Bank of Iceland. Copyright: Icelandic Photo Agency.

The report concluded that bank’s work methods were careless. Formal proposals on actions were not delivered to the government and the government didn’t request formal proposals from the bank either, reports.

Suspicion and difficulties in cooperation marked the relations between Davíd Oddsson, who was one of three governors and the chairman of the Central Bank board at the time of the collapse, and most of the Social Democrats’ ministers.

The SIC stated that the Central Bank had made a serious mistake when its employees forgot to renew a loan channel at the Bank for International Settlements in Basel, which was obtained through agreements in March 2008.

When the mistake was made it was clear that it was necessary to increase the Central Bank’s access to foreign currency. The loan channel would have provided access to USD 500 million (EUR 366 million).

In a draft of a memo made by Ingimundur Fridriksson, another of the Central Bank’s governors at the time, it is stated that once the mistake became evident, a renewal of the loan channel was immediately requested. The request was denied.

The report also reveals that in April 2008, Oddsson sent a formal request for a currency swap agreement with the Bank of England. The request was denied.

However, Mervyn King, governor of the Bank of England, offered to help find ways to scale back the Icelandic banking system instead, which, in his opinion, was the only realistic way to face the problem.

The Central Bank of Iceland did not accept that offer but instead requested that the Bank of England reconsider its earlier request for a currency swap agreement. No reply was received to that request.

Click here to read more about the crisis report.

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