Central Bank Violated Lending Rules In 2008 - The Reykjavik Grapevine

Central Bank Violated Lending Rules In 2008

Published March 11, 2013

It has been revealed that in 2008 the governor of the Central Bank of Iceland, Davíð Oddsson, and then Prime Minister, Geir Haarde, were aware of the dyer situation that Kaupþing bank was in and that there was serious risk involved in lending the bank 500 million EUR without secure collateral, RÚV reports.
The loan in question was made to the failing bank on 6 October 2008. The Financial Supervisory Authority took control of the bank on 9 October 2008.
A report released on Saturday by the Parliament Budget Committee notes that the majority of Iceland’s foreign currency reserves were depleted by the loan made to Kaupþing.
A recording has come to light of a conversation between Davíð and Geir that took place on 6 October 2008 specifically discussing the loan. The budget Committee’s report explicitly states that both men were aware of the serious state of Kaupþing, as were they aware of the massive risk involved in making the loan.
Collateral for the loan was in Danish bank FIH. Half of the loan has been repaid, but it is unclear how much will ultimately be recovered.
Geir is a member of the Independence Party and acted as Prime Minister from June 2006 through February 2009, when he was ousted from parliament in the wake of the financial collapse. He was recently prosecuted for his lack of action in the lead up to the financial collapse and found guilty of one count (of the 4 levied against him) of negligence and mismanagement.
Davíð was chairman of the Central Bank from 2005 through to his resignation by popular demand in 2009 following the financial collapse. He served as Chairman of the Independence Party from 1991 through 2005, and was Prime Minister of Iceland for the Independence Party from 1991 through 2004. He has been named one of the key players in the global economic crisis. In September 2009 he was named editor of the daily newspaper Morgunblaðið.


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