Sunday

3rd Mar 2024

British banks pay out for Iceland rescue deal

British banks have paid out the first in a series of multi-million pound cheques to cover the bill for savers hit by the Icelandic banking collapse in 2008.

The payments, which will be made in three annual tranches of £363 million, will go to the Financial Services Compensation Scheme (FSCS) which insures deposits in UK banks. The FSCS will then repay a loan from the UK government due in April 2016.

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  • Icesave collapsed in 2008 as Iceland's banks imploded (Photo: mydogminton)

Iceland's banking sector, the growth of which had driven a rapid economic boom in the country, collapsed in 2008 at the height of the financial crisis. Its banks owed more an estimated €4 billion, with an estimated 350,000 savers from the UK and the Netherlands particularly badly hit, with their respective governments stepping in to provide compensation.

The UK and Dutch governments then took Iceland to court in December 2011 with the support of the European Commission. They claimed that the Icelandic government was liable to pay out compensation worth a minimum of €20,000 to the British and Dutch depositors, and that by reimbursing Icelandic nationals who lost money Reykjavik had breached the principle of non-discrimination.

However, in January 2013 the Court of the European Free Trade Association (EFTA) ruled that EU deposit guarantee legislation did not require the Icelandic government to act as a guarantor of last resort.

In a statement on Sunday (1 September), Anthony Browne, chief executive of the British Bankers' Association, an industry lobby group, said that the compensation "ensured that no savers who had money in Icelandic banks lost out".

The move should give "confidence to consumers that if there is ever another bank failure that their savings will be protected,” he added

For its part, the Icelandic government insists that Landsbanki's administrators have already reimbursed around 50 percent of the total claims made by British and Dutch savers and will settle deposit claims in full by 2016.

EU legislators are currently preparing legislation aimed at harmonising rules for bank resolution in the event of a future crisis. The legislation is expected to include provisions for shareholders rather than ordinary savers are first in line to take losses.

EU rules guarantee savings worth up to €100,000.

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