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The Icelandic banks

The Icelandic banks. After the collapse of the Icelandic banking system Glitnir, Landsbanki and Kaupthing were split into state owned (new) banks and old banks. The basis for the split was primarily geographic Icelandic assets were put in the state owned new banks

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The Icelandic banks

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  1. The Icelandic banks • After the collapse of the Icelandic banking system Glitnir, Landsbanki and Kaupthing were split into state owned (new) banks and old banks. • The basis for the split was primarily geographic • Icelandic assets were put in the state owned new banks • International assets were left behind in the old banks • The state owned banks will make up the future new banking system while the old banks will be dissolved and wound up in an orderly manner. • The proceeds from the asset sales will be distributed among the creditors in a fair and transparent manner according to the Icelandic legislation on the winding up of financial undertakings which is in line with the EU Winding up directive.

  2. The Icelandic Banks/Resolution Committees • In each of the three old banks, the Financial Supervisory Authority (FME) replaced the board with a Resolution Committee. • Has all the powers of the board • Undertakes the affairs of the financial undertaking • Conducts its business operations • Shall abide to and execute the decisions taken by the FME

  3. The Icelandic Banks • The old banks were granted a Moratorium in November and December 2008 by the district court of Reykjavik • An assistant approved by the court • There are various restrictions on any disposal of assets or use of funds during the Moratorium

  4. The Icelandic banks / The Resolution Committees • Currently meetings are on regular basis between the creditors of the old banks and the Resolution Committees. These meetings include i.a. briefings on the process of reorganization of the banking system, the division of the banks and the valuation of their assets. • The resolution committees are working on maximizing the value of the assets of the old banks to the benefit of all stakeholders.

  5. The Icelandic Banks • For each of the three new banks, the Government – the new owner – elected a new board of directors, who in turn recruited a new management team.

  6. Financial Supervisory Authority • The Financial Supervisory Authority is a fundamental institute in restructuring the banking sector. • Following the collapse of the three banks, the immediate challenges facing the Icelandic authorities were to restore a functioning and viable banking system and to stabilize the currency, the króna.

  7. Restructuring the banking sector • The work on restructuring the banking sector comprises five processes running in parallel: • A valuation of the net assets of the new banks at the point of their establishment. • A valuation on a similar basis of the net assets of  the old banks to serve as a frame of reference for the Resolution Committees in their work with the creditors.

  8. Restructuring the banking sector • The preparation of IFRS compliant primary financial statements for each of the new banks at the beginning of their operations. • The creation of financial instruments linking the new and old banks which will be supported by the valuation process and the opening financial statements of the new banks. • A review of the bank regulatory framework and supervisory practices to strengthen safeguards against potential new crises.

  9. Restructuring the banking sector • The bank restructuring process is coordinated by a committee, comprising representatives from the Prime Minister’s Office, the Financial Supervisory Authority (FSA), the Central Bank of Iceland, the Ministry for Foreign Affairs, the Ministry of Finance, and the Ministry of Business Affairs. The chairman of this committee is an impartial banking expert appointed by the Prime Minister.

  10. Restructuring the banking sector • After the establishment of audited new opening financial statements for the new banks, the Government is committed to capitalizing them up to a capital adequacy ratio of at least 10%. • The injection of capital will be made using tradable financial instruments issued on market terms.

  11. Restructuring the banking sector • The Government will review the bank regulatory framework and supervisory practice to strengthen safeguards against potential new crises. • It has engaged an experienced Finnish bank supervisor with extensive international experience to assess the regulatory framework and supervisory practices and to propose necessary changes. • In particular, the goal is to assess the framework of rules on liquidity management, connected lending, large exposures, cross-ownership, and the “fit and proper” status of owners and managers.

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