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The collapse of the Icelandic banks – how it’s affected us

October 31, 2008 by admin  
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Earlier this month the already chaotic financial markets were thrown into even more turmoil with the Icelandic banking collapse. Consumers, businesses, and charities were horrified to learn about the collapse, and many feared that they would lose their money. In some cases it seems that they may have been right to think that. Over the past couple of years many businesses, authorities, charities, and consumers have been rushing to Icelandic banks to invest their savings, with accounts such as Icesave and Kaupthing Edge offering high interest rates on savings in order to attract new customers.

However, the joy of these savers, who thought that they were making huge returns on their money, was to be short lived.

After the announcement of the banking collapse there was widespread panic amongst consumers, which got worse when it became clear that the Icelandic government was not going to honour obligations to compensate savers from the UK, leaving many of them facing huge losses. Under these circumstances the UK government said that it would offer a 100% guarantee on UK consumers’ savings with UK branches of the Icelandic banks. However, some people had placed their savings with Icelandic banks in Guernsey and these were not covered by the guarantee because they were considered to be offshore accounts.

In addition to those with money in Guernsey accounts losing out big time there were also local authorities and charities that had placed money into these accounts, and the government could not afford to place guarantees on these, stating instead that they would deal with them on a case by case basis. Many charities, such as the Cat’s Protection League, lost millions of pounds as a result of the banking collapse, and over one hundred local authorities lost at least £1 billion worth of public money, which caused outrage amongst many consumers.

The government has said that the local authorities did not act recklessly in placing their cash with the Icelandic banks. The government stated recently: ‘We will look at issues arising on a case by case basis. For those local authorities which are facing severe short-term difficulties Government and the Local Government Association will agree an appropriate set of ways to assist.’

However, whilst the government thinks about what to do there are concerns that it could be consumers that end up paying for the losses, with some industry officials stating that charges such as council taxes could soar in order to make up the shortfall, and various services could end up being reduced.

This has been denied by the Local Government Association, and one official said: ‘In the short term, councils are confident they will have sufficient funds to tide them over for a considerable period. While this may affect some councils financially, we do not expect it to have any impact on local services.’

Tags: case, iceland banks, UK branches, savings, The government, period

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