DOCSLIB.ORG

Coping with a Banking Crisis – Rise, Fall and Rebirth of the Icelandic Banking System

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Coping with a Banking Crisis – Rise, Fall and Rebirth of the Icelandic Banking System Coping with a banking crisis – Rise, fall and rebirth of the Icelandic banking system Second International Workshop on Managing Financial Instability in Capitalist Economies Reykjavik, Iceland September 23 - 25, 2010 Tryggvi Pálsson, Director Financial Stability Central Bank of Iceland SI-65698 Coping with a banking crisis The Rise 2 Iceland • In the 20th century Iceland went from being one of the poorest economies in Europe to a prosperous one – High but volatile growth, -mostly led by fisheries – From 2/3 of labour force in agriculture to 2/3 in services • In past decades: liberalization, deregulation and privatization • Member of the EEA in 1994 – Free movement of capital – European “passport” for financial institutions headquartered in any country within the area – Common legal and regulatory framework … – … but the safety net, e.g. deposit insurance and LOLR, and crisis management and resolution remained largely national (a poisonous coctail) 3 Banking system: - from sectoral and state owned to fully privatized (2003) - major acquisitions abroad 2004-2005 4 Kaupthing Bank Kaupthing began operations in Faroe Islands Stockholm branch opened Kaupthing Bank A new investment bank, New York office Commenced merged wtih Kaupthing Denmark, opens in was opened operations in London Bunadarbanki Islands Copenhagen Organic 2001 2002 2003 2004 2005 2006 2007 2008 Acquired the Stenghthens its Buy a 20% share in the Indian Finnish securities Norwegian operation by Acquired the British bank financial firm FiNoble Advisors Kaupthing acquired Acquired JP company Sofi, now acquiring the securities Singer & Friedlander Privat. Kaupthing has a option Handsal Asset Nordiska Bank in Kaupthing Bank Oyj firm A.Sundvall to buy the remaining shares in Management, based Sweden in Geneva five years time Acquired Acquired the The newly merged KB Bank Kaupthing dobbles Kaupthing Bank Kaupthing acquired a Swedish securities acquired the Norwegian in size with the Luxembourg acquired 20% share in firm Aragon asset manegment firm, acqusistion of the PFA Pension Fund Norwegain insurence Tyren Holding. Acquired the Danish bank FIH (LUX) Finnish insurance company company Storebrand Novestia Oyj as well Acquired BMY Corporate Fiinance (UK), now Kaupthing Limited ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 Total Assets 5 Glitnir Bank Glitnir Property Group established in Olso Office opened in Shanghai Islandsbanki and FBA Office opened in Branch opened in Office opened in Office opened in Office opened in merge London Luxembourg Copenhagen Halifax New York Organic 2001 2002 2003 2004 2005 2006 2007 2008 Acquried Swedish Acquired Finnish FBA acquired one of Acquired the securities firm Fisher 2000Britains oldest banks Partners securities 2008 Norwegain bank company FIM R.Raphael & Sons BNbank Acquired the Acquried Swedish real estate Acquired the Norwegian financial advisor Leimdörfer into Norwegain bank firm FactoNor, by Acquired Glitnir Property Group KredittBanken KredittBanken Enter the Norwegian securities market with the acqusition of Norse securities ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 Total Assets 6 Landsbanki Merger with part of Burdaras Privatisation London branch Amsterdam branch complete established opened Organic 2001 2002 2003 2004 2005 2006 2007 2008 2000 Acquisition of Acquired Acquisition of Bunadarbanki Acquisition of UK Acquisition of UK 2008 70% share in remaining shares International, now deposit bank investment bank Heritable Bank in Heritable Bank Landsbanki Luxembourg Cheshire Guernsey Bridgewell plc. Acquisition of three Europian (UK) Acquisition of UK securities companies: financial service Teather & Greenwood (UK), firm Key Finance, Kepler Equities (France) and Acquired by Heritable Bank Merrion Capital (Ireland) ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 Total Assets 7 Rapid expansion of the banking system • Assets 2 times GDP in 2003, roughly 11 times Total assets of banking system/GDP 18.000 12,00 GDP in 2008 16.000 10,00 14.000 • Two thirds of the banks’ 12.000 8,00 10.000 activities were in other 6,00 b.ISK 8.000 countries and more than 6.000 4,00 4.000 half of their revenues 2,00 2.000 0 0,00 • No foreign banks were 2003 2004 2005 2006 2007 2008 Year operating in Iceland Nominal GDP Total assets of banking system* Assets/GDP 7 Rapid expansion of the banking system • Macro imbalances domestically – Large aluminium investment projects – Housing loans by banks: initiated in 2004 and not properly funded – Decrease of direct and indirect taxes – Balance of payments showing increasing deficits • Business opportunities were tempting – Easy access to market financing with low rates and risk premia – Appreciating currency partly due to carry trade (Glacier bonds) – Acquisitions of financial companies in other countries and establishment of branches easy due to EEA agreement – Icelandic banks were highly rated by credit rating agencies • For a while in 2007 the banks had the highest possible rating with one of the rating agencies 9 Mini crisis 2006 • Foreign investors & media expressed concern – Too rapid expansion and risk appertite – Reliance on market funding – Ownership structure and governance “Iceland provides global warning to Wall Street” Wall Street Journal: Apr. 10, 2006 10 The crisis of confidence (in 2006) - as seen by investors* Even though profitable, the growth Growing borrowings, with over- was too dramatic! reliance on wholesale funding It all appears unreal to the Perceived vulnerability of banks with average Small and little understood economy… deteriorating macroeconomic investor! with absolute and relative macroeconomic environment indicators out of sync with Western Europe Limited understanding of the Frequent and transformational ownership structures with intricate acquisitions, with young management cross-shareholdings teams One-way bets by big money managers followed by negative analyst reports become a self- fulfilling prophecy to blow out spreads and shut market! * Sandeep Agarwal, MD, Head of FIG Debt Capital Markets, Credit Suisse 11 Market financing peaked in 2005 New Debt Issues from Icelandic Banks 16 EUR STG USD Other 14 12 10 8 6 4 Source: Bondware,2 20 April 2007 Note: Including Icelandic Banks (€bn) by Issuance FIH for Kaupthing 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 YTD European Medium Term Notes dominant until 2006 when US issues replaced EMTN 12 Maturity profile just before the downfall 13 Contingency work in run-up to crisis • Contingency working group established in 2006 – Representatives from three ministries, the Central Bank and FME (the Icelandic FSA) – Ever increasing frequency of meetings as of late 2007 • Contingency exercises – Payment systems exercise in 2007 – Nordic/Baltic crisis management exercise in September 2007 • Among Central Bank measures – Internal contingency group activated in Nov. 2007 – Closer cooperation with FME – Intensified liquidity monitoring both in frequency and coverage – Advise sought from international experts – Relayed concerns to the government – Pressured banks to downsize and encouraged subsidiarisation of banks’ operations abroad – Swap arrangements with three Nordic central banks 14 Coping with a banking crisis The Downfall 15 Crisis Timeline October 6th •Trading in three largest February 9th Icelandic banks suspended October 7th November 19th •Governor IF resigns from •CBI grants Kaupthing 500 •Emergency banking bill •IMF programme the CBI m. EUR liquidity support passed signed • Government guarantees all •FME (Icelandic FSA) takes February 27th deposits control of Landsbanki November 21st •New laws passed on the •Prime minister announces •FME takes control of Glitnir •S&P downgrades Central Bank. New governor that the country is in danger •Glitnir is downgraded Iceland to BBB- and deputy governor of “national bankruptcy” •Trading on the FX market is appointed ground to a halt September November 28th March 9th 15th •The Central Bank •FME takes control of •Collapse of activates capital Straumur Lehman controls October 8th •Landsbanki assets frosen February 26th to March •Moodys downgrades January 25th 13th •Minister of Business affairs September 29th Iceland •IMF mission to Iceland resigns •Icelandic State •Riksbanken grants •Director of the FME and the announces its Kaupthing 520 m. EUR board suspended plans to inject liquidity line capital into Glitnir March 21st •S&P downgrades October 9th February 1st •FME takes control Iceland •FME takes control of •Previous government of SPRON and Kaupthing replaced by a minority Sparisjóðabankinn •Trading of all stocks on the government (Icebank) stock exchange is suspended •Fitch downgrades Iceland 16 Collapse of 88% of the banking system • In early October 2008 the major banks Glitnir, Landsbanki Íslands and Kaupthing, representing 88% of the banking system in asset terms, collapsed in a week. (In March 2009 a second wave increased it to 97%) • Large defaults internationally; a devastating blow for a small economy 17 Comparison with previous crises •Relatively largest banking system ever to have gone through a crisis and an unusually large share of it became insolvent Commercial banks' assets in Share of banking system in insolvency various previous financial crises in various previous crises % of GDP % of total banking system assets 1000 100 900 800 80 700 600 60 500 400 40 300 200 20 100 0 0 Chile ('81)Chile Korea ('97) Japan ('91) - Russia ('98) Turkey ('00) Mexico ('94) Iceland ('08) Finland ('91)Finland Chile ('81)Chile Norway ('87) Norway Sweden ('91) Sweden Spain ('77)Spain Equador ('98) Thailand ('97) Malaysia ('97) Malaysia
Load more

Recommended publications
  • Iceland's Financial Crisis
    Iceland’s Financial Crisis A Global Crisis • The current economic turmoil in Iceland is part of a complex global financial crisis and is by no means an isolated event. • Governments around the world have introduced emergency measures to protect their financial system and rescue their banks, as they suffer from a severe liquidity shortage. • Thus far, Iceland has been hit particularly hard by this unprecedented financial storm due to the large size of the banking sector in comparison to the overall economy. • The Icelandic Government has taken measures and is working hard to resolve the situation, both independently and in cooperation with other parties. • Iceland is cooperating with its Nordic and European partners and is currently consulting with the IMF on measures toward further stabilization of the Icelandic economy. 1 Bank Liquidity Tightens • The liquidity position of Icelandic banks tightened significantly in late September and early October as interbank markets froze following the collapse of Lehman Brothers. • The nationalization of Glitnir, one of Iceland’s three major banks, on Sept. 29 th , led to a credit rating downgrade on sovereign debt and that of all the major banks. • This led to further deterioration of liquidity. • Early October, all three banks were suffering from a severe liquidity shortage and in dire need for Central Bank emergency funding. Negative coverage on the Icelandic economy, particularly in the U.K, did not help either. • By mid-October, all three banks, Glitnir, Landsbanki and Kaupthing, had been taken over by the government on the basis of a new emergency law. • The banks had become too large to rescue.
    [Show full text]
  • Kaupthing Bank Hf. Creditors' Report 5 February 2009 Update March 2009
    KAUPTHING BANK HF. CREDITORS' REPORT 5 FEBRUARY 2009 UPDATE MARCH 2009 Disclaimer This report (including all subsequent amendments and additions) was prepared by the Resolution Committee for the creditors of Kaupthing Bank hf. ("the Bank") for information purposes only. It should give creditors an overview of the background, the current situation and the potential steps going forward. The additions and amendments to this report since the previously published versions of this report are intended to give the creditors information on recent developments but are not necessarily and should not be regarded as an exhaustive list of all developments which creditors may consider material. In preparing and updating this report, the Bank has not taken account of the interest of any particular creditor or group of creditors. Where information in this report is based on information from third parties the Bank believes such sources to be reliable. The Bank however accepts no responsibility for the accuracy of its sources. Furthermore, without prejudice to liability for fraud, the Bank accepts no responsibility for the accuracy or completeness of any information contained in this report and, without limitation to the foregoing, disclaims any liability which may be based on the accuracy or completeness of this report. The Bank is under no obligation to make amendments or changes to this publication if errors are found or opinions or information change. The fact that the Bank has made certain additions and amendments does not create any obligation on the Bank to make amendments or changes to this publication in respect of any other developments, errors or changes in opinion or information, regardless of whether such development or changes occur after or before the date of publication of the revised report.
    [Show full text]
  • The Riksbank's Measures During the Global Financial Crisis 2007-2010
    The Riksbank’s measures during the global financial crisis 2007-2010 Riksbank Study, February 2020 KÄNSLIG THE RIKSBANK’S MEASURES DURING THE GLOBAL FINANCIAL CRISIS 2007-2010 3 Contents FOREWORD 4 INTRODUCTION 5 1. THE SWEDISH FINANCIAL SYSTEM WAS SENSITIVE TO GLOBAL ECONOMIC DEVELOPMENTS 7 2. THE CRISIS SPREAD TO SWEDEN 9 3. THE ROLE OF THE RIKSBANK IS TO MAINTAIN PRICE STABILITY, AND TO PROMOTE A SAFE AND EFFICIENT PAYMENT SYSTEM 12 4. THE RIKSBANK EMPLOYED SEVERAL TOOLS DURING THE CRISIS 14 Extraordinary liquidity provisioning 15 Emergency liquidity assistance to specific institutions 22 Swap lines to other central banks 25 5. LESSONS FROM THE CRISIS HAVE SERVED TO STRENGTHEN THE RIKSBANK’S CRISIS PREPAREDNESS 28 REFERENCES 32 ANNEX A. USD LENDING AUCTIONS 34 ANNEX B. SEK LENDING AUCTIONS 35 ANNEX C. PRESS RELEASES 38 4 THE RIKSBANK’S MEASURES DURING THE GLOBAL FINANCIAL CRISIS 2007-2010 Foreword This Riksbank Study describes the measures taken during the global financial crisis 2007- 2010, when the Riksbank provided the Swedish banking system with extraordinary loans, provided emergency liquidity assistance to specific institutions, and limited crisis contagion through swap lines to neighbouring countries. The study complements previously published work on how the Riksbank handled the crisis, by providing a chronological account of the series of events that unfolded in 2007- 2010 and the corresponding Riksbank action. The study also outlines the lessons that the Riksbank learned from the crisis, and how these have served to strengthen our crisis preparedness. The purpose of the study is to contribute to ongoing international initiatives to document case studies from actual financial crises.
    [Show full text]
  • Decision-292-12-COL.Pdf EN
    Case No: 68972 Event No: 645913 Dec. No: 292/12/COL Public version of1 EFTA SURVEILLANCE AUTHORITY DECISION of 11 July 2012 regarding state aid granted in the winding up of certain investment funds connected to New Glitnir, New Landsbankinn and New Kaupþing (Iceland) The EFTA Surveillance Authority (“the Authority”), HAVING REGARD to the Agreement on the European Economic Area (“the EEA Agreement”), in particular to Article 61 and Protocol 26, HAVING REGARD to Protocol 3 to the Surveillance and Court Agreement (“Protocol 3”), in particular to Article 1(2) of Part I and Articles 6, 7(3) and 13 of Part II, HAVING CALLED on interested parties to submit their comments pursuant to those provisions2 and having regard to their comments to the decision to open the formal investigation procedure, Whereas: I. FACTS 1. Procedure (1) By letter dated 8 April 2009, Byr sparisjóður, Rekstrarfélag Byrs, Íslensk verðbréf, Rekstrarfélag íslenskra verðbréfa, MP banki, MP sjóðir, Sparisjóður Reykjavíkur og nágrennis, and Rekstrarfélag Spron (referred to collectively throughout as “the complainants”) made a complaint against alleged state aid granted in the winding up of investment funds connected to the three failed Icelandic banks Glitnir, Kaupþing and Landsbankinn. The letter was received and registered by the Authority on 17 April 2009 (Event No. 515439). (2) After various exchanges of correspondence3, by letter dated 8 September 2010 the Authority informed the Icelandic authorities that it had decided to initiate the procedure 1 This document is made available for information purposes only. In this public version, some information has been omitted so as not to divulge confidential information.
    [Show full text]
  • Economic and Monetary Chronicle
    Economic and monetary chronicle January 2010 On 5 January, the president of Iceland refused to sign an act of law amending the Minister of Finance’s authorisation to grant a Treasury guarantee of loans taken by the Depositors’ and Investors’ Guarantee Fund (DIGF) due to Icesave deposit accounts. In so doing, the presi- dent referred the matter to a national referendum. Three days later, Parliament passed an act of law stipulating that the referendum should take place as soon as possible, and no later than 6 March. On 5 January, rating agency Standard and Poor’s announced an un- changed rating for the Republic of Iceland, citing the risk of isolation in credit markets and heavy pressure from abroad to resolve the Icesave dispute. On 5 January, rating agency Fitch Ratings announced a downgrade of Iceland’s sovereign credit ratings for domestic and foreign currency obligations. Iceland’s long-term foreign and domestic currency ratings are now BB+ and BBB+, and the short-term foreign currency rating is B. The country ceiling was lowered from BBB- to BB+. On 6 January, rating agency Moody’s announced that it was keeping Iceland’s sovereign rating unchanged for the present, in spite of the president’s veto of the Icesave guarantee legislation. The agency con- sidered it likely that domestic political instability and external pressure to resolve the Icesave dispute would result, both of which could have a negative effect on Iceland’s credit rating. On 7 January, the Financial Supervisory Authority (FME) granted ISB Holding ehf. permission to own a qualifying holding in Íslandsbanki on behalf of Glitnir Bank hf.
    [Show full text]
  • The Global Financial Crisis: Analysis and Policy Implications
    The Global Financial Crisis: Analysis and Policy Implications Dick K. Nanto, Coordinator Specialist in Industry and Trade July 2, 2009 Congressional Research Service 7-5700 www.crs.gov RL34742 CRS Report for Congress Prepared for Members and Committees of Congress The Global Financial Crisis: Analysis and Policy Implications Summary The world has entered a global recession that is causing widespread business contraction, increases in unemployment, and shrinking government revenues. Some of the largest and most venerable banks, investment houses, and insurance companies have either declared bankruptcy or have had to be rescued financially. Nearly all industrialized countries and many emerging and developing nations have announced economic stimulus and/or financial sector rescue packages, such as the American Recovery and Reinvestment Act of 2009 (P.L. 111-5). Several countries have resorted to borrowing from the International Monetary Fund as a last resort. The crisis has exposed fundamental weaknesses in financial systems worldwide, demonstrated how interconnected and interdependent economies are today, and has posed vexing policy dilemmas. The process for coping with the crisis by countries across the globe has been manifest in four basic phases. The first has been intervention to contain the contagion and restore confidence in the system. This has required extraordinary measures both in scope, cost, and extent of government reach. The second has been coping with the secondary effects of the crisis, particularly the global recession and flight of capital from countries in emerging markets and elsewhere that have been affected by the crisis. The third phase of this process is to make changes in the financial system to reduce risk and prevent future crises.
    [Show full text]
  • Kaupthing Bank
    Kaupthing Bank - COMPANY UPDATE - HOLD Rating Summary and Conclusions Equity value 223,7 bn.ISK Kaupthing Bank acquires FIH Price 407,9 Kaupthing Bank (KB banki) has reached an agreement with Forenings Sparbanken (Swedbank) to Closing price 23.06.2004 429,5 purchase FI Holding, the holding company of the Danish corporate bank FIH. The purchase price amounts to ISK 84 billion (EUR 1,000 million), in addition to which Swedbank will retain part of Contents FIH's own equity. The acquisition will be financed with the issue of new share capital to holders of pre-emptive rights, as well as through subordinated debt. The price-to-book ratio for the Summary and Conclusions.........................................................1 transaction is 1.6. Kaupthing Bank acquires FIH....................................................2 Payment..................................................................................2 FIH is the third-largest bank in Danmark, with total assets close to ISK 800 bn at the end of Q1. It Financing.........................................................................2 was established in 1954 by the Danish state to encourage growth and development of Danish FIH...............................................................................................2 industry. FIH's activities are almost exclusively corporate lending. It holds a 17% share of the Danish Effect on group operations and value...................................3 corporate market and has around 5,000 customers, half of whom have been dealing with the
    [Show full text]
  • Addendum to the 2009 Comprehensive Annual Financial Report Illinois Municipal Retirement Fund Investment Portfolio As of December 31, 2009
    Illinois Municipal Retirement Fund Addendum to the 2009 Comprehensive Annual Financial Report Illinois Municipal Retirement Fund Investment Portfolio as of December 31, 2009 Interest Asset Description Rate Maturity Date Par Value Cost Value Market Value FIXED INCOME U.S. Securities Corporate Bonds 1st Horizon Mtg Passthru TR 5.30% 02/01/2035 $ 2,428,978 $ 2,328,783 $ 2,168,767 Abbott Laboratories Disc Coml Paper 4/2 Yrs 3& 0.13% 01/11/2010 10,000,000 9,999,450 9,999,725 Abbott Labs Nt 5.13% 04/01/2019 3,320,000 3,305,624 3,472,614 Ace Cash Express Inc Sr 10.25% 10/01/2014 330,000 330,000 240,900 Actuant Corp 6.88% 06/15/2017 830,000 826,738 789,538 Advanstar Communications Inc 2nd Lien Tldue 10.36% 11/30/2014 90,000 51,525 11,025 AEP Inds Inc Sr Nt 7.88% 03/15/2013 180,000 180,000 172,350 AES Corp 7.75% 03/01/2014 350,000 373,988 355,250 AES Corp Sr 8.00% 10/15/2017 2,319,000 2,321,224 2,379,874 AES Corp Sr Nt 7.75% 10/15/2015 580,000 580,000 588,700 AES Corp Sr Nt 9.38% 09/15/2010 215,000 209,088 221,988 Aetna Inc New 6.75% 12/15/2037 255,000 268,617 265,896 Affiliated Computer Svcs Inc Sr Nt 5.20% 06/01/2015 490,000 508,620 505,313 Affinia Group Inc 9% 9.00% 11/30/2014 720,000 668,494 698,400 Ak Airls Inc 9.50% 04/12/2010 1,245 1,202 1,145 Ak Airls Inc 9.50% 04/12/2012 109,201 106,906 106,024 Aleris International Inc Dip 10.46% 02/13/2010 267,922 94,869 273,504 Aleris Intl Inc B•1 NR 4.25% 12/19/2013 146,018 146,018 7,301 Aleris Intl Inc B•1 Ru 4.25% 12/19/2013 306,132 286,376 140,821 Aleris Intl Inc Sr 9.00% 12/15/2014 640,000 640,000
    [Show full text]
  • Iceland's Financial Crisis
    Order Code RS22988 November 20, 2008 Iceland’s Financial Crisis James K. Jackson Specialist in International Trade and Finance Foreign Affairs, Defense, and Trade Division Summary On November 19, 2008, Iceland and the International Monetary Fund (IMF) finalized an agreement on a $6 billion economic stabilization program supported by a $2.1 billion loan from the IMF. Following the IMF decision, Denmark, Finland, Norway, and Sweden agreed to provide an additional $2.5 billion. Iceland's banking system had collapsed as a culmination of a series of decisions the banks made that left them highly exposed to disruptions in financial markets. The collapse of the banks also raises questions for U.S. leaders and others about supervising banks that operate across national borders, especially as it becomes increasingly difficult to distinguish the limits of domestic financial markets. Such supervision is important for banks that are headquartered in small economies, but operate across national borders. If such banks become so overexposed in foreign markets that a financial disruption threatens the solvency of the banks, the collapse of the banks can overwhelm domestic credit markets and outstrip the ability of the central bank to serve as the lender of last resort. This report will be updated as warranted by events. Background Iceland1 is the smallest economy within the Organization for Economic Cooperation and Development (OECD) with a gross domestic product (GDP) in 2007 of about $11.8 billion, as indicated in Table 1. Historically, Iceland’s economy has been based on marine and energy resources. More recently, Iceland has developed a strong services sector, which accounts for two-thirds of the economic output.
    [Show full text]
  • The 2008 Icelandic Bank Collapse: Foreign Factors
    The 2008 Icelandic Bank Collapse: Foreign Factors A Report for the Ministry of Finance and Economic Affairs Centre for Political and Economic Research at the Social Science Research Institute University of Iceland Reykjavik 19 September 2018 1 Summary 1. An international financial crisis started in August 2007, greatly intensifying in 2008. 2. In early 2008, European central banks apparently reached a quiet consensus that the Icelandic banking sector was too big, that it threatened financial stability with its aggressive deposit collection and that it should not be rescued. An additional reason the Bank of England rejected a currency swap deal with the CBI was that it did not want a financial centre in Iceland. 3. While the US had protected and assisted Iceland in the Cold War, now she was no longer considered strategically important. In September, the US Fed refused a dollar swap deal to the CBI similar to what it had made with the three Scandinavian central banks. 4. Despite repeated warnings from the CBI, little was done to prepare for the possible failure of the banks, both because many hoped for the best and because public opinion in Iceland was strongly in favour of the banks and of businessmen controlling them. 5. Hedge funds were active in betting against the krona and the banks and probably also in spreading rumours about Iceland’s vulnerability. In late September 2008, when Glitnir Bank was in trouble, the government decided to inject capital into it. But Glitnir’s major shareholder, a media magnate, started a campaign against this trust-building measure, and a bank run started.
    [Show full text]
  • The Politics of Bank Bailouts
    The Politics of Bank Bailouts Raphael Reinke Thesis submitted for assessment with a view to obtaining the degree of Doctor of Political and Social Sciences of the European University Institute Florence, 11 November 2014 European University Institute Department of Political and Social Sciences The Politics of Bank Bailouts Raphael Reinke Thesis submitted for assessment with a view to obtaining the degree of Doctor of Political and Social Sciences of the European University Examining Board Prof. Pepper D. Culpepper, European University Institute (Supervisor) Prof. Mark Hallerberg, Hertie School of Governance Prof. Ellen M. Immergut, Humboldt-Universität zu Berlin Prof. Hanspeter Kriesi, European University Institute © Raphael Reinke, 2014 No part of this thesis may be copied, reproduced or transmitted without prior permission of the author. To Heribert, Marianna and Sarah Contents Acknowledgments xiii 1 Crisis, banks and business power 1 Das Bailout 1 Selling out to cronies 4 The argument 7 2 Banking and bailouts 15 Banking – in good times and in bad 15 Threat and urgency 19 Comparing bailouts 21 Bailouts during the recent crisis 26 Conclusion 38 3 Public money, public profit 39 Public money, private profit 41 Beyond private profits 47 Bailouts and voters 50 Evidence from the recent financial crisis 53 Analyzing bailouts quantitatively 55 Results 62 Conclusion 69 4 Structural power of banks and the state 73 Two dimensions of business power 75 Financial crisis as a test case 80 vii viii The British and the American bailouts 82 Bank power:
    [Show full text]
  • Rebranding a Disgraced Organization: a Case Study of the Icelandic Banks
    Rebranding a disgraced organization: A case study of the Icelandic banks Elvar Ólafsson Department of Business Administration Master Thesis in Management Research Spring 2010 LUND UNIVERSITY Abstract Title: Rebranding a disgraced organization: a case study of the Icelandic banks University: Lund University - Sweden Course: Masters Thesis in Business Administration, Programme in Management Research, 30 University Credit Points (30 ECTS). Seminar date: 2010-06-03 Author: Elvar Ólafsson Supervisor: Sverre Spoelstra Keywords: Rebranding, Disgraced Organizations, Corporate Social Responsiveness, Corporate Visual Identity, Customers perception of Image & Reputation Purpose: The purpose of this thesis is to gain understanding of rebranding of a disgraceful organization. It will be a modest attempt gain insight into customer’s perception of a changed identity and how it affects the organization’s image and reputation. Methodology: The present study is qualitative research using semi-structured open ended interviews with empirical data that is approached through interpretative approach. Theoretical perspectives: Relevant theory on rebranding, corporate social responsiveness and corporate visual identity; altogether framed by the focus on the perception of change in the eyes of the customer. Empirical foundation: This paper is based on a case study of the three major banks in Iceland. The empirical material constitutes 14 semi-structured open ended interviews with customers. Additionally, bankruptcy reports, newspaper articles and the banks web sites are analyzed. Summary Findings: The banks rebranding efforts have had little affect on their customers as the general public has lost all trust in the governance of the financial system. My main argument is that although branding and rebranding theories state how and what you should do to be successful, there are situations as in my case that leave the disgraced organization’s rebranding strategies with little power to win back the loyalty of their customers.
    [Show full text]