Increased Push To Privatise Iceland’s Banks, Evoking Pre-Crash Memories

There is a growing push to privatise Landsbankinn and Íslandsbanki, two banks currently majority owned by the government. There is, however, no pending legislation or parliamentary discussion to do so, and the shady operations of the then-fully privatised banks was found to be a leading cause of the 2008 financial collapse.

Currently, the Icelandic treasury owns a 98.2% stake in Landsbanki and a 100% stake in Íslandsbanki. These banks, which were privatised in 2003, were taken over by the Icelandic government in the wake of the 2008 financial collapse.

Fréttablaðið reports that Ásta Sigríður Fjeldsted, the managing director of the Iceland Chamber of Commerce, told reporters that she believes the time is right to sell the banks to private interests, speculating that politicians are possibly afraid to take this step. At the same time, Lilja Björk Einarsdóttir, the director of Landsbanki, told RÚV that the bank was in a good financial position to be sold, and that investors both foreign and domestic are possible.

For the record, there is no pending legislation to privatise either of these banks. That said, it is a part of the joint coalition platform that “government holdings in financial institutions is amongst the most comprehensive in Europe, and the government seeks to find ways to reduce this.”

In light of this, it bears pointing out the Special Investigative Commission (SIC) report. Appointed in December 2008 with the goal to “collect information, find facts and provide an overview of the main events leading to the fall of the Icelandic banks and identify its causes”, it was published at last in April 2010.

In the report’s findings, the then-privatised banks featured prominently in the determined causes that led to the 2008 financial collapse. Specifically, the SIC report found that the banks were in part to blame for essentially committing fraud, with directors loaning to themselves and buying stock in their own companies, artificially inflating the value of the banks.

In addition, in an interview with Grapevine in 2010, William Black, Associate Professor of Economics and Law at the University of Missouri – Kansas City School of Law, he put a great deal of emphasis on the privatised banks, as well as the political environment at the time, which covered for the banks and refused to believe they could do any wrong.

For the time being, RÚV reports that Prime Minister Katrín Jakobsdóttir has said it is unlikely either of these banks will be sold this year. That said, she emphasised that she believes it important that the Icelandic government be the leading investor in Landsbanki, although selling Íslandsbanki is certainly an option.