Iceland Crisis

2008-2011

Relative to the size of its economy, the Icelandic banking collapse was the largest experienced by any country in economic history. Iceland became an emblem of the global financial meltdown. The privatized banks were bought by greedy tycoons that went crazy with »innovative finance solutions.« They went on a massive spending spree buying everything from Danish high-end retail stores to British football clubs, as they morphed from commercial to merchant banks.

One part of their innovative approach was to offer high interest online bank accounts called Icesave. But deposit rates are supposed to be cheap, stable working capital, not high-yield investments for bank depositors. Predictably, the banks ran out of money and defaulted on $62 billion of foreign debt. Thousands of people, pension funds, and municipalities in the UK and the Netherlands lost billions when the banks collapsed.

Finnish banks were more exposed to the Icelandic banking sector than elsewhere in the Nordic region. The Icelandic banking crisis jeopardized the Finnish government’s otherwise healthy financial position. In eleven days, Finland’s long-term ratings were downgraded three to six notches, with economy-wide consequences.

References:
Wikipedia - 2008–2011 Icelandic financial crisis