ABSTRACT
The Icelandic financial crisis involved how three dynamic and reckless banks – Landsbanki Islands, Kaupthing Banki, Glitnir Banki – not only bankrupted themselves, but almost brought down the entire Iceland economy. Five years after the disaster hit, the Governor of the Central Bank of Iceland, Mar Guomundsson, reviewed what had gone horribly wrong. Liberalization of the Iceland financial markets first occurred in the 1980s in the effort to boost investment and economic activity. This involved deregulation and privatization of Icelandic public and financial institutions and the introduction of an element of foreign ownership. The Central Bank of Iceland's foreign currency reserve was low in terms of both the economy's short-term liabilities and also in terms of foreign currency deposits at the banks. Foreign deposits in the Icelandic banks increased considerably from the end of 2006, and this was used to justify the one-sided financing of the banks through foreign debt securities markets.
