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Assorted Personal Notations, Essays, and Other Jottings

[LINK] “Ireland and Iceland: when cosiness kills”

At A Fistful of Euros, Sigrún Davíðsdóttir describes the similarities of the Icelander and Irish banking crises, product of recklessness by a minority of well-connected people.

The fate of the Irish and the Icelandic banks are intertwined in time: as the Irish government decided on a blanket guarantee for the Irish banks, the Icelandic government was trying, in vain, to save the Icelandic banks. In spite of the guarantee six Irish banks failed in the coming months; the government bailed them out. The Icelandic banks failed over a few days. Within two months the Icelandic parliament had decided to set up an independent investigative committee – it took the Irish government almost seven years to set up a political committee, severely restricted in terms of what it could investigate and given a very limited time. The Irish report now published is better than nothing but far from the extensive overview given in Iceland: it lacks the overview of favoured clients and the favours they enjoyed.

A small country with a fast-growing banking sector run by managers dreaming of moving into the international league of big banks. To accelerate balance sheet growth the banks found businessmen with a risk appetite to match the bankers’ and bestowed them with favourable loans. Lethargic regulators watched, politicians cheered, nourishing the ego of a small nation wanting to make its mark on the world. – This was Iceland of the Viking raiders and Ireland at the time of the Celtic tiger, from the late 1990s, until the Vikings lost their helmets and the tiger its claws in autumn 2008.

In December 2008, eleven weeks after the Icelandic banking collapse, the Icelandic parliament, Alþingi, set up an independent investigative committee, The Special Investigative Commission, SIC, to investigate and clarify the banking collapse. Its three members were its chairman Supreme Court justice Páll Hreinsson, Alþingi’s Ombudsman Tryggvi Gunnarsson and lecturer in economics at Yale Sigríður Benediktsdóttir. Overseeing the work of around thirty experts, the SIC published its report on 12 April 2010: on 2400 pages (with more material online; only a small part of the report is in English) the SIC outlined why and how the banks had failed.

In November 2014, over six years after the Irish bank guarantee, the Irish Parliament, Oireachtas, set up The Committee of Inquiry into the Banking Crisis, or the Banking Inquiry, with eleven members from both houses of the Oireachtas; its chairman was Labour Party member Ciarán Lynch. The purpose of the Committee was to inquire into the reasons for the banking crisis. Its report was published 27 January 2016.

[. . .]

In one aspect, the Irish Banking Inquiry differed fundamentally from the Icelandic one: the Irish was legally restrained from naming names. Consequently, the Irish report contains only general information on lending, exposure etc., not information on the individuals behind the abnormally high exposures.

This is unfortunate because in both countries, the high-risk banking was centred on a small group of individuals. In Ireland these were mostly property developers and some well-known businessmen; in Iceland the favoured clients were the banks’ largest shareholders, a somewhat unique and unflattering aspect that puts Iceland in league with countries like Mexico, Russia, Kazakhstan and Moldova.

The SIC had no such restraints but could access the banks’ information on the largest clients, i.e. the favoured clients. The report maps the loans and businesses of the banks’ largest shareholders and their close business partners, also some foreign clients. Consequently, the SIC report made it a public information that the largest borrower was Robert Tchenguiz, owed €2.2bn, second was Jón Ásgeir Jóhannesson, famous for his extensive UK retail investments, with €1.6bn. Björgólfur Thor Björgólfsson, Landsbanki’s largest shareholder (with his now bankrupt-father) owed €865m. These were loans issued by the banks in Iceland; with loans from the banks’ foreign operations these numbers would be substantially higher.

Written by Randy McDonald

February 8, 2016 at 8:26 pm

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