Icesave and the collapse of EU regulations
A very interesting radio show on RUV explained the situation of why the Icesave deal is so bad, and in fact out of touch with reality. The Mirror (Spegillinn in Icelandic) is the name of the show, and it is probably the only piece of media wort listening to or reading in the whole Icelandic media landscape. A shame, but true non the less.
Sigrún Davíðsdóttir is the RUV reporter in London and she has constantly given outstanding reports over since the economy crashed here in Iceland over eight months ago. She is the queen of the Icelandic media by far.
She claims that the FSA in the UK could have acted to stop the Icesave when it looked to good to be true and the Icelandic system was out of all bounds and way out of proportion. The FSA claim afterwards that they couldn’t have done anything to prevent this disaster from happening. I have said on this blogsite before that they must have some responsibility, it’s their job to act if things are not right. Daviðsdóttir agrees with me on this one and claims the FSA excuses are simply not true.
Accrording to Davíðsdóttir the Icelandic banks had been discussed by House of Lords in the British Parliament in July 2008 because of serious and widespread worries about the financial situation of the banks and the Icelandic system.
She also said that a spokesperson for the British government said that the FSA are responsable for how bank outlets behave and the FSA should keep an eye out for fianancial status and fraudulant activity, and that the FSA is in reglular contact with its counterpart in the homeland of the bank. According to this reply Davíðsdóttir say´s that according to the best possible information that there was no will or attention brought to this case for the single reason that the money involved where such a fraction of the British financial markt. In other words, it was just pocket change for them.
The failure of EU regulations:
Davíðsdóttir also tells of a report from a Swedish Central Bank employee from November 2008 where he claims that weak and insufficient EU regulations should punish Iceland in a way they were never designed to do. This has been talked about a lot here in Iceland. Eirikur Bergman wrote about this in the Guardian I seem to remember, for example. The fact is that the rules about the money insurance are made to hold if a bank goes bankrupt like happens sometimes, but they where never designed to be used in the very strange situation of a total collapse of a whole system. The rules on that event are not in place.
It seems very clear that the EU regulations are designed to help people to get their money back if a bank goes bankrupt, but I seriously doubt that they are designed to put a nation into slavery or directly punish it with threats like not lending them anything, not assisting them with anything. By making Iceland into Cuba or North Korea by sanctions and financial restrictions is in direct conflict with the philosophy of the EU, and in fact all its regulations as well.
The Swedish banker also claims that most of the responsibility is on the Icesave directors and bankers as well as the Icelandic politicians who let this go on and ignore warnings. The FSA and other regulatory parties have a heavy responsibilty too. But most of all the regulatory failure, or bankruptcy of the EU is not Iceland´s fault, but Iceland still has to pay for that.
The Swedish banker also claims that the insurance fund that should cover the loss should be funded by the banks, and not the state. The definition of the EU regulations about bank outlets simply dont apply when the bank outlet far exceeds the homelands financial system and therefor puts in in grave danger of collapse.
He also claims that the British government and the FSA could for example have advertised that the Icelandic system was weak, but instead Icesave was allowed to advertise that it was just as safe as the British banks accounts. This is a clear case of the FSA responsibility. Their actions to do nothing when they knew the situation well is actually devastating to say the least, and not to mention the classical and clear indication of things not being as they should be were the very high interest rates. Rates who looked clearly lika a big Ponzi scheme. Way out of proportion compared with other banks in the UK.
The Swedish banker deducts that the nations that let the Icelanic bank outlets operate should shoulder a big part of the responsibility instead of the Icelandic government and therefor the Icelandic taxpayer who is not loosing everything because of this. He also claims that the EU should give Iceland more favourable assistance than they do now.
The assistance is none in fact. The EU have no legal responsibility to help, but they have a moral duty to do so. In the light of total regulatory failure one small nation should not suffer for the actions of a few bankers.