Monday, October 18, 2010

The validity of the Icesave-agreement

International law specialist at Norway’s Tromso University, Professor Peter Orebech, says that Iceland would actually be breaking EU rules by forcing its tax payers to reimburse the Netherlands and the UK for Icesave debt, which rightfully belongs with the country’s privately funded depositors’ insurance fund.

Comments invited at

Professor Orebech's conclusion:

The EU/EEA sector of finance is in principle self-financing. Funding to the depositor guarantee schemes is subtracted from the 0,15 % taxation of the bank's total assets. In case of insufficiency the scheme may borrow money, whether private or public. Another option is to insure against unexpected and uncovered losses. There are no other ways. Going for a national state guarantee prompted by the insufficiency as such, as is the case for Tryggingasjóður in the Icesave case, is breaking the [European Union] Directive 94/19/EC.

However, an agreement on the Icesave reimbursement – financed by loans taken by Tryggingasjóður – stripped by any guarantees from the Iceland government, is clearly legal. I.e. the growing scheme alone should service the loan.

Since the depositor guarantee scheme may not operate as means of competition, it is equally prohibited to implement legal systems the effect of which is distortion of competition. State funding cannot bring in to national depositors guarantee schemes, as stated in the Directive 94/19/EC. In case of lacking coverage all depositors suffers from a pro rata scaling-down. National state "topping up" is clearly unwarranted. A possible new system requires amendments to this directive. Such amendments should transform into EEA-law, to become binding in Iceland. No initiative is yet taken to fill that gap, I am afraid.

Thus the following is the result of this survey: Neither the government nor the people of Iceland should pay for the failing Icesave bank. The Landsbanki – Icesave CEO's responsibility is redoubtable. Depositors should critically assess bank leadership before trusting private funding to the bank. The bank deposit rules are published and notified. Persons seeking high profits are also seeking high risks.

This solution is placing responsibility where it belongs, to the leadership in the banks, to the CEO that failed to run the company and keep it afloat. Such a solution does not spoil the expectations of depositors.

His full report on this issue is available at

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