The Icelandic Banking Collapse: A Story of Broken Promises

Abstract

This is a dramatic title but after all this is a dramatic story. The total collapse of a country's financial system and in the wake its currency is no small matter. This is the story of the Icelandic banking crisis: An unprecedented event that occurred in Iceland the last days of September and the first of October 2008. At the time of writing, it looks as this is going to be the most costly financial crisis for a sovereign industrialized country ever. The estimated direct cost that the public will be responsible for is today estimated to be around 85% of the country's GDP. This short paper gives an account of the events the lead to the collapse, discusses how it was handled, and what the future holds for the country.

Keywords: Financial Crisis, Iceland

JEL Classification: G20, G15