A friend of mine was once granted a job interview at one of the most prominent central banks in the world. At one stage of the interview, he was asked to put himself in the place of the governor of the central bank in a hypothetical meeting with the chief executive of the country's largest bank. In the meeting, the chief executive reveals: “There is no easy way to say this, but we cannot close the books this evening.” What should the response be? The 'correct' answer was something akin to: “Thank you for bringing this up with us so soon. It is worrisome, but go home and relax. I will bring the matter up with your successor in the morning.”
In October 2008, 97% of Iceland’s banking sector collapsed within three days. Needless to say, Icelanders have a long list of lessons learned from this calamity. One of the first was that we were too slow to clean up our house. The country's leading bankers and the top financial watchdog staff were fired, in line with the logic in the story above, but it took months for the cabinet to resign, and even longer to oust the central bank governor who had run the central bank into the ground. Some management-level staff in the banks also remained in their jobs long enough to cover their tracks. To this day there has been remarkably little turnover among Iceland's civil servants.
