Alistair Darling and the Icelandic Bank Collapse

SIC Correctly Identified Risks

• Icelanders shocked and dismayed by collapse• SIC, Special Investigation Commission, set up

with immunity and exceptional powers• Conclusion: Rapid credit expansion and

excessive, obscured risk, created by three business groups

• True, but SIC neglected other source of systemic risk: discrepancy between field of operations and field of institutional insurance

The Baugur Bubble

Foreign Factors Crucial

• SIC identified vulnerabilities in Icelandic banking sector, systemic risks

• Neglected US and UK crucial decisions entering into vulnerable situation

• Darling’s revealing 2011 account of crisis

Darling on Icelandic Bankers

• P. 137: Bankers, or clients, made “handsome donations” to Conservative Party

• Wrong: None of them donor; however, the Rowland family, post-collapse owner of Kaupthing Luxembourg, confusion

• P. 152: Icelandic private jumbo jets in Luxembourg

• Wrong: Cargo planes belonging to Air Atlanta which bought them 1993, long before boom

Darling on Minister B. Sigurdsson

• P. 137–8: At 2 Sept. 2008 meeting, Minister and staff “did not realize just how bad a state Landsbanki was in”

• Was Darling aware of the bad state in which British banks found themselves?

• And was Landsbanki in a bad (risky) state because of British reluctance to move accounts?

• Recovery rate much higher than expected

Darling on Minister G.H. Haarde

• P. 137: Iceland “rapidly becoming insolvent”• Wrong: Economy basically sound• P. 137: Icelandic Minister preferring Russian loan• Wrong: Credit lines and currency swap lines

refused by traditional allies• P. 147: “undertakings … sufficient money”• Wrong: Icelandic authorities never made such

undertakings

Account of Conversation

• P. 147: Prime Minister Haarde tried to negotiate down payment from KSF

• Haarde categorically denies this

• No basis for the allegation that KSF illegally transferred money to Kaupthing

• Book-keeping device: mutual loan agreements

Darling on Minister Mathiesen

• P. 152: Complained, not told the full story• Wrong: Icelandic authorities did nothing to

mislead their British counterparts• P. 154: Other version than in contemporary

interviews on conversation with Mathiesen• UK Treasury Committee concluded that the

account was wrong• Mathiesen did neither accept or deny any

obligations

Sources of Hostility

• Exceptional hostility towards Icelanders in book

• Ordered his pilot to avoid Icelandic airspace (perhaps a joke)

• Possible explanation: upstarts, newcomers, outsiders in British establishment

• Another explanation: Scottish angle, “arc of prosperity”

Upstarts from Nowhere?

Scottish Angle?

Conclusions

• Interest in, and hostility towards, Iceland by Darling and Brown extraordinary

• Government did not help British banks owned by Icelanders, but RBS and HBOS and Bradford and Bingley, etc., anti-terrorism law

• No currency swap deals and empty promises of cooperating with winding down system

• Predictions in 2005 and 2008 by a ret. CBI Governor and a Senior Person in finance