Is Saving With Icelandic Banks Safe?

I would definately agree about not putting all your eggs in one basket unless that basket (case) happens to be Northern Rock. The Government is using your tax pounds to guarantee 100% of all monies deposited within Northern Rock, not just the £35,000 guaranteed by other banks. Take advantage. Its the best things you're going to get as a tax payer

Good article!! Other points to note. The icelandic banks have recently posted solid results. Unlike say B & B here. The FT gave them a clean bill of health. Their liquidity and capital base is strong and their reliance on the credit markets is far lower than many other institutions. Mainly because they have been out globally pushing excellent rates of intrest and getting their liquidity (cash) that way. Moody's and Fitch the credit ratings agencies are in deep trouble as they rated the Monolines (US Municipal Bond re-Insurers) as AAA and the monolines are all going down the pan. So the ratings agencies are under pressure about all their ratings, as they are going to get sued big-time over the monolines. It has been very cheap to cover cash lent to or guarenteed by the Icelandic banks, (becuase they are AAA), so the cost of a credit default swap note (A sort of insuarnce against the bank defaulting, that is traded) was very cheap. These were getting more expensive for these banks mainly because: Credit traders don't understand the Icelandic bank structures, and have not taken into account the positive year end results, and they are worried about the ratings review. Another fact to bear in mind is that many UK banks who are in far worse trouble and posted terribel results, say B & B. Or who have far greater exposure to the subprime toxic derivatives, say barclays, are all a bit miffed that £6bn of UK savings have flown off to iceland. When they are all desperate for the liquidity here. As they are all struggling to borrow cos of the credit crunch. So I suspect there was a certain amount of PR hype, when the UK instututions saw that at last, they had something that would muddy the water, to stem the outflow, so they probably got their PR agencies to bang the drum in order to help the writers of the negative articles that have been published. i

Furthermore, the FSCS "top up" is reliant on the Icelandic bank paying its annual levy to the FSA - if they don't then no top up and compensation would be limited to the first €20,887 from the Icelandic scheme. And, if the bank doesn't notify depositors that it has ceased paying its FSCS levy and then goes under, depositers won't have the opportunity to bail out! In contrast, ICICI belongs to the FSCS proper, so deposits are covered by the UK scheme to the full extent of the first £35,000. A safer bet.

Nick, You omit to point out that Iceland is a very small country in economic terms. How does this affect the ability of the Icelandic Government to support their banking sector if there is a major problem? Why exactly does the Icelandic Central Bank have an interest rate of 13.75% (Policy rate)? Is it simply because they have to pay that high a rate of interest to achieve adequate liquidity in the economy? It is a very small country in population terms, not economic. GDP per capita is 5th in the world at over $40,000 (UK is 13th). It also belongs to the exclusive club of countries with AAA-rated government debt. Its financial services sector is highly developed and accounts for a large share of their wealth. The Icelandic central bank and financial services regulator are both solid institutions, and when you bear in mind that until about 5 years ago all the banks were state-owned, you can be quite confident in their ability to manage their resources in case of an emergency. The central bank's interest rate is high, in fact it is the highest of all AAA-rated sovereigns. It is on a slight downward trend now, in common with other states, but the main reason it is so high is that inflation in Iceland is currently running at an annual rate of almost 6%, thanks to a high level of cunsumer spending, and the bank has been attempting to get a grip on it. Liquidity is not an issue. Take Landsbanki for example - it has liabilities of circa 800m Euros maturing in the next year and yet it holds over 9 Billion Euros in liquid assets - a very sound position indeed. Also, as stated in the article, Landsbanki has no exposure whatsoever to the US sub prime market - a position many banks would very much like to be in. john, And, if the bank doesn't notify depositors that it has ceased paying its FSCS levy and then goes under, depositers won't have the opportunity to bail out! Ceasing to pay the FSCS levy would not only be a matter of public record, it would also compromise a bank's authorisation from the FSA to undertake deposit-taking business, so I don't think you need to worry about that. You don't work for ICICI by any chance? :-) tri, So this seems to be saying that I can't guarantee to always get my own money back even if I want it? All banks have to abide by capital-reserve requirements. As the conditions state, invoking such requirements would only happen in exceptional circumstances, such as a result of every account holder trying to withdraw at the same time. Whatever happened, though, the money remains yours. I suspect that other institutions have similar terms to guard against such unlikely events.

The central banks of Denmark, Finland, Iceland, Norway and Sweden all have responsibility for national financial stability and
a role as providers of emergency liquidity assistance where necessary (as in "Lender of last resort") The Memorandum of Understanding between their central banks should offer some further comfort to depositors in Icelandic banks who may be unaware of these agreements.

http://216.239.59.104/search?q=cache:8S3OwCySncYJ:www.sedlabanki.is/uploads/files/NordiskMoUGenerellslutligENG.pdf+nordic+member+banks&hl=en&ct=clnk&cd=17&gl=uk