KSF was a British bank, reporting to the FSA, which had taken €3.5bn (£2.8bn today) in deposits from British savers since the launch of the Kaupthing Edge account eight months earlier. He pointed to £1.6bn which the FSA had informed him had been transferred from KSF to Kaupthing in Reykjavik in breach of British laws. He explained to Haarde that there was a gaping hole in KSF's liquid funds, leaving the bank ill-prepared to deal with a deposit run. Moreover, retail depositors could be comforted that their savings were covered by the UK Financial Services Compensation Scheme, not the in-doubt Icelandic equivalent.īrown dropped his bombshell. KSF was a British bank, reporting to the UK Financial Services Authority, and its fortunes ought to have been distinct from those of the Reykjavik-based parent, Kaupthing. On the face of it this seemed irrational. Because of its Icelandic ownership, panicky UK savers had begun emptying their accounts. KSF had also attracted hundreds of thousands of British depositors with its own high-interest online account Kaupthing Edge. ![]() He began to ask questions concerning Kaupthing Singer & Friedlander, a British bank owned by, but trading at arms-length from, Iceland's Kaupthing. But then the British prime minister changed tack. ![]() These were difficult subjects Brown wanted to discuss, though they came as no surprise to Haarde. A run on deposits had begun as nervous British savers scrabbled to repatriate their cash. Depositors had been attracted by industry-beating interest rates and reassured that their savings would be covered by an Icelandic state guarantee scheme that was "fully funded".īy early October it was becoming increasingly clear that the capacity of the Icelandic government to stand behind the country's deposit guarantee scheme was in doubt. Panic was spreading among hundreds of thousands of British savers who had put money into the Icesave online deposit accounts offered by Landsbanki. ![]() Brown urged his counterpart to immediately seek a rescue loan from the International Monetary Fund, a suggestion that within days became inevitable.īut Brown had a more pressing interest in the health of the tiny island economy that extended well beyond offers of sympathy to a far-flung friend. It was clear Iceland was too small to offer a state bailout the three banks had combined assets almost 10 times the size of the GDP.
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