![]() ![]() The old banks were put into receivership and liquidation, resulting in losses for their shareholders and foreign creditors. In the following days, new banks were founded to take over the domestic operations of Kaupthing, Landsbanki and Glitnir. On 6 October, the Icelandic legislature instituted an emergency law which enabled the Financial Supervisory Authority (FME) to take control over financial institutions and made domestic deposits in the banks priority claims. However, subsequent efforts to restore faith in the banking system failed. ![]() On 29 September 2008, it was announced that Glitnir would be nationalised. Due to the huge size of the Icelandic financial system in comparison with the Icelandic economy, the Central Bank of Iceland was unable to act as a lender of last resort during the crisis, further aggravating the mistrust in the banking system. The assets of the three banks totaled 14.437 trillion krónur at the end of the second quarter 2008, equal to more than 11 times the national GDP. At the end of the second quarter of 2008, Iceland's external debt was 9.553 trillion Icelandic krónur (€50 billion), more than 7 times the GDP of Iceland in 2007. Trust in the banks gradually faded, leading to a sharp depreciation of the Icelandic króna in 2008 and increased difficulties for the banks in rolling over their short-term debt. As the financial crisis of 2007–2008 unfolded, investors perceived the Icelandic banks to be increasingly risky. This expansion was driven by ready access to credit in international financial markets, in particular money markets. In the years preceding the crisis, three Icelandic banks, Kaupthing, Landsbanki and Glitnir, multiplied in size. The crisis led to a severe economic slump in 2008–2010 and significant political unrest. Relative to the size of its economy, Iceland's systemic banking collapse was the largest of any country in economic history. It involved the default of all three of the country's major privately owned commercial banks in late 2008, following problems in refinancing their short-term debt and a run on deposits in the Netherlands and the United Kingdom. ![]() The Icelandic financial crisis was a major economic and political event in Iceland between 20. ![]()
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