Sunday, October 15, 2017

Did someone ever looked into the role of bank regulations causing Iceland's bank crisis?

I do not know, but I guess not.

From Wikipedia we read the following about the causes for the Iceland bank crisis:

“In 2001, banks were deregulated in Iceland. This set the stage for banks to upload debts when foreign companies were accumulated. The crisis unfolded when banks became unable to refinance their debts. It is estimated that the three major banks held foreign debt in excess of €50 billion, or about €160,000 per Icelandic resident, compared with Iceland's gross domestic product of €8.5 billion”

That seems true. But where does it say anything about why Iceland's banks were able to get so much debt? For instance from UK and Holland?

If I were an investigative reporter, which I am not, I would start by looking at how much capital UK and Dutch banks had to hold when lending to these banks of Iceland... and then compared this to how much capital they needed to hold when lending to a small or medium unrated enterprises in the UK or in Holland. 

That should give you an idea of where UK and Dutch banks would think they would earn their highest risk-adjusted returns on equity... and the rest should be easy to figure out.

Perhaps Iceland should have sued the Basel Committee for Banking Supervision.