When the Icelandic government began winding up the three largest banks in the country in October 2008, it was the most comprehensive collapse ever seen in such a large banking system. Total assets were estimated at about $160bn at the end of 2007, and the three banks that dominated the system, Landsbanki, Glitnir and Kaupthing, all fell in a single week.
Under emergency legislation enacted in October 2008 and April 2009, the three banks’ domestic assets and liabilities were transferred to new banks – Landsbankinn, Islandsbanki and Arion Bank. These new banks are majority-owned by the three defaulted banks, effectively giving the original foreign creditors a debt-for-equity swap. For the foreign assets and liabilities, three resolution committees were appointed to assess claims from creditors and depositors, and to run down the banks’ loan books and investments.
