Iceland Borrows European "Template" - Removes Large Deposit Guarantees
Following the crisis in October 2008, Iceland's government declared all deposits in domestic financial institutions were 'blanket' guaranteed - an Emergency Act that was reafrmed twice since. However, according to RUV, the finance minister is proposing to restrict this guarantee to only deposits less-than-EUR100,000. While some might see the removal of an 'emergency' measure as a positive, it is of course sadly reminiscent of the European Union "template" to haircut large depositors. This is coincidental (threatening) timing given the current stagnation of talks between Iceland bank creditors and the government over haircuts and lifting capital controls - which have restricted the outflows of around $8 billion.
Bill on deposit will be tabled in the winter. There will be a deposit equivalent to one hundred thousand euros guaranteed. Later on it is to withdraw from the 2008 statement of all deposits in domestic financial institutions were fully secured.
The bill is currently in the process of Finance, but the basis is very similar to the bill presented to Parliament in November 2010 but was not passed. These changes are in line with the European Directive on deposit-guarantee schemes, where individual deposits up to a hundred thousand are secured.
Iceland Prime Minister Sigmundur David Gunnlaugsson said creditors in the nation’s failed banks are the main obstacle to lifting capital controls as he stepped back from promises to provide a full-fledged plan by this month.
Offshore creditors representing about $8 billion have been trapped by the controls since Iceland tried to seal off its markets from capital flight almost five years ago. Gunnlaugsson has previously said he wants writedowns from creditors holding about $3.8 billion in claims denominated in kronur to help take pressure off the currency once controls are phased out. He declined today to give an amount.
“The government isn’t entering into negotiations with creditors,” Gunnlaugsson said. “The government will wait.”
It’s “apparent to anyone who looks at the situation that some leeway must be created in order for us to lift the capital controls,” he said. “Obviously, if all these funds would leave the economy directly, that would not make it possible for us to lift the capital controls.”
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