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Banking: Iceland

Answer

On 8 October 2008 the FSA announced that the UK branch of Landsbanki was in default for the purposes of the FSCS. The Chancellor announced that all retail depositors with the UK branch of Landsbanki would receive their money in full. In taking this action the Government had several objectives including maintaining financial stability and the interests of taxpayer protection. In November 2008 the FSCS began the payout of compensation to UK depositors, which consisted of three elements: (i) under the EC Deposit Guarantee Scheme Directive, deposits up to £16,872, which should be paid by the Icelandic Dpeositors and Investors Guarantee Fund (DIGF); (ii) FSCS eligible deposits above £16,872 and below £50,000 paid by the FSCS; and (iii) balances above £50,000 paid by HMT. In total, around £4.5 billion has been paid. It is estimated that this includes £2.35 billion that the UK Government paid out to depositors on behalf of the DIGF, £1.4 billion paid out by the FSCS for deposits above €20,887 and below £50,000, and £800 million paid out by the UK Government in respect of deposits above £50,000. On payout to a depositor, the claim of that depositor against Landsbanki is transferred to the FSCS. However, HMT has a contractual right to recover from the FSCS recoveries referable to the HMT portion (that is, payments to deposits above £50,000). The rights that relate to the depositors' claims of no more than £16,872 will be transferred to the DIGF. However, any such transfer will only take effect upon the coming into force of the "Icesave Refinancing Loan Agreement", Information provided by the Resolution Committee for Landsbanki indicates that the FSCS and HM Treasury will make significant recoveries of the compensation paid to depositors through the winding up of Landsbanki. In relation to the compensation paid out on behalf of the DIGF, on 5 June 2009, the UK Government reached agreement with the Icelandic authorities on a process to ensure the UK is refunded. The terms of the loan arrangements are set out in my letter to the House of 13 January (WA154). They include a state guarantee which, under Icelandic law, must be authorised by the Icelandic Parliament in order to take effect. A Bill was passed in August to this effect but with a number of conditions introduced by the Icelandic Parliament. Following further negotiations, the loan agreement was amended to take account of these conditions. On 30 December, the Parliament in Iceland endorsed the loan arrangement and agreed a state guarantee. However, on 5 January 2010 the Icelandic President announced that he would not sign the Bill that the Parliament had approved, and instead proposed a referendum. A referendum has been scheduled for 6 March 2010. The UK Government have received assurances from the Icelandic Government that they remain committed to meeting their obligations and intend to repay the loan in full.

Secondary information

Type

Written question

Reference

1901; 717 c173-4WA

Session

2009-10

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Subjects

Compensation Bank services Banks Insolvency Iceland Landsbanki

Link

View this Written question on www.publications.parliament.uk