Banks in Iceland were given far more freedom and less regulation than the European Economic Area (EEA), of which Iceland is a member, had asked for, which may have helped cause the economic collapse.
The Special Investigative Commission (SIC) says that although Iceland was effectively brought under EU rules with regards to banking, Iceland was stil not forbidden to set stronger regulations on its own banks. The distinct lack of competition that exists in Iceland should have actually encouraged the government to use stronger regulations; not fewer.
Many conservative politicians have pointed to EEA regulations with regards to how the privatized banks – which began about 20 years ago and concluded in 2000 – were run. But rather than their hands being tied, the SIC contends, they actually had a great deal of room to add additional regulations to how business was done.
Of special emphasis to the SIC are regulations on how much money the owner of a bank can borrow, in order to buy things they already own. As strange as such a regulation may sound, one of the factors that led to the economic crisis was the fact that many of Iceland’s bank owners loaned themselves huge chunks of cash, which they then used to buy stocks in their own banks, thus artificially inflating their value.
Iceland joined the EEA in 1993. At that time, former Central bank chairman and current Morgunblaðið editor Davíð Oddsson was prime minister of the country.