ABSTRACT
This chapter examines the events and business practices of bank managers, which led to the demise of the Icelandic banking system. The governments ownership of banks and other financial companies had contributed to the lack of diversity in the market and had impeded the development of the Icelandic financial market, with negative consequences for the economy as a whole, as predicted by economic theories at the time. The liberalization plan brought the promise of a modern financial system, devoid of politically motivated lending, and, even more importantly, a healthier economy with increased diversification. Privatization of banks is particularly precarious, given the delicate effect of the deposit money multiplier on financial stability and banker's role in creating the money supply. The buyer agreement between the S-Group and the Icelandic government included Socit Gnrale and/or another international financial institution as one of the investors.
