Should Icesave Loans Have Lower Interest Rates? Skip to content

Should Icesave Loans Have Lower Interest Rates?

If the equality regulation of the EEA would apply to the interest rates of the loans the Depositors’ and Investors’ Guarantee Fund of Iceland is being granted by the British and Dutch states to repay Landsbanki’s Icesave deposits, ISK 185 billion (USD 1.5 billion, EUR 1 billion) could be saved.

Copyright: Icelandic Photo Agency.

That is the conclusion of a new report, written by economist Daniel Gros, who is a member of the board of the Central Bank of Iceland, Morgunbladid reports.

The UK and the Netherlands have granted Iceland loans worth nearly EUR 4 billion (USD 6 billion) at 5.55 percent annual interest rates.

Gros poses the question of whether British and Dutch authorities are not entitled to give Iceland’s Depositors’ and Investors’ Guarantee Fund the same credit terms as their own funds based on the EEA’s regulations.

Gros points out that the governments of the UK and the Netherlands used the EEA equality regulation to prove that Iceland is obligated to cover deposits in Icelandic banks abroad as well as in Iceland.

At the same time, their depositors’ and investors’ guarantee funds are categorized as “ex post,” which means that they haven’t accumulated sufficient funds and must rely on loans from their respective governments to finance disbursements, Gros argues.

In the UK, the depositors’ and investors’ guarantee fund is given a loan on LIBOR interest with 30 additional basic points, which translates as 1.5 percent interest—four percent lower interest than the loans Iceland is granted.

Furthermore, the British HM Treasury has decided that in the next three years, British financial institutions won’t pay more than GBP 1 billion (USD 1.7 billion, EUR 1.1 billion) in annual interest from loans, which the British Depositors’ and Investors’ Guarantee Fund receives from the HM Treasury.

That would coincide with the maximum annual payment from the Icelandic state to be EUR 5 million (USD 7 million), considering that the British economy is approximately 200 times larger than that of Iceland.

Click here to read more about Icesave.

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