Icelandic banks: frequently asked questions

1. Why did Icelandic banks run into trouble in the financial crisis, and what has this meant for depositors?

Icelandic banks had expanded rapidly into overseas markets prior to the financial crisis, resulting in its banking system becoming over-extended. According to a Treasury Committee report on the Icelandic banking failure, prior to the collapse of Iceland's three largest banks (Glitnir, Landsbanki and Kaupthing) their combined debt exceeded six times the nation's GDP of €14 billion.

As a result of this expansion, Icelandic banks had a strong UK customer base. The failure of Lehman Brothers in September 2008 added considerable strain to the global financial system, including Iceland’s banks. In October 2008, Glitnir, Landsbanki and Kaupthing collapsed.

Arrangements were put in place by the previous Government to intervene in Iceland’s banks in order to protect UK depositors. Arrangements were made to pay compensation to retail depositors in the Icelandic banks of Landsbanki (which includes Icesave products), Heritable (of which Landsbanki was formally the parent company), and Kaupthing Singer & Friedlander (which includes Edge products).

2. How have UK taxpayers been affected by the crisis in Iceland?

At the height of the financial crisis, the previous Government made loans to the Icelandic Depositor and Investors Guarantee Fund (DIGF) and the Financial Services Compensation Scheme (FSCS) in order to pay compensation for retail depositors up to £50,000. In addition, the previous Government made top up payments so that balances above £50,000 were fully compensated. Financial support was given to Iceland principally to protect UK retail customers.

The balances as of 31 March 2011 of the loans to DIGF and FSCS for each bank, is set out in the table below.

	DIGF Loan Amount (mn)	FSCS Loan Amount (mn)	Top Up Payment (mn)
Kaupthing Singer & Friedlander	N/A	£1,200	£210
Heritable	N/A	£237	£44
Landsbanki	£2,250	£1,400	£780

HM Treasury is continuing to work with the Icelandic Authorities to ensure the UK is refunded for the amounts it paid out to depositors in respect of amounts covered by the Depositors' and Investors' Guarantee Fund (DIGF). A loan agreement that would have had that effect was put to a referendum of the Icelandic people on 9 April 2011 and was rejected.

The matter is now been referred by the European Free Trade Association (EFTA) Surveillance Authority (ESA) to the EFTA Court. HM Treasury continues to assume a full recovery of funds.

The terms of the repayment for the loans to FSCS are still being negotiated. HM Treasury will seek to recover the top up payments from the respective administration process of each bank.

3. A number of customer deposits were transferred to ING Direct, following the Icelandic banking crisis. What information is available on the individual institutions/products affected?

The following summarises the position for UK customers of Icelandic banks:

Heritable

Deposits in Heritable were transferred to ING Direct, including fixed-rate bond, ‘easy access’, ‘online saver’ and ‘direct saver’ products, and the various notice-period accounts (60, 90, 120 days).
Customers continue to access their accounts.
The small number of Heritable deposit accounts not transferred to ING Direct entitled customers who are covered by the UK Financial Services Compensation Scheme (FSCS) to receive compensation.
Creditors who are non FSCS eligible should contact the administrator for the UK subsidiary of Landsbanki.
All contact details are at the base of this factsheet.

Kaupthing Singer & Friedlander / “Edge”

Customer deposits in Kaupthing’s Edge brand were transferred to ING Direct.
Customers continue to access their accounts.
The small number of Kaupthingdeposit accounts not transferred to ING Direct entitled customers who are covered by the UK Financial Services Compensation Scheme (FSCS) to receive compensation.
Creditors who are non FSCS eligible should contact the administrator for the UK subsidiary of Kaupthing.
All contact details are at the base of this factsheet.

Icesave

Customer deposits in Icesave were not transferred to ING Direct - the Financial Services Compensation scheme instead put in place arrangements to allow depositors to be compensated.

4. What was the situation for non retail customers of Icelandic banks?

Heritable, which is the UK subsidiary of Landsbanki, is in administration in the UK. Creditors should make contact directly with the administrators, Ernst & Young.

The UK subsidiary of Kaupthing is also in administration in the UK. Creditors should make contact directly with the administrators, Ernst & Young.

5. What about non UK mainland customers in Iceland banks - Kaupthing Singer & Friedlander (Isle of Man), and Landsbanki Guernsey? In particular, why were UK depositors with Icesave afforded protection, but not those with Landsbanki Guernsey and Kaupthing Singer & Friedlander (Isle of Man)?

Under EU law, depositors with the UK branches and UK subsidiaries of Icelandic banks were eligible for compensation under the EC Deposit Guarantee Scheme Directive. As Guernsey/Isle of Man is not part of the European Economic Area and therefore not a signatory of the EC Deposit Guarantee Scheme Directive, there is no legal obligation on the Icelandic Compensation Scheme or the Icelandic Government to repay depositors with Landsbanki Guernsey and Kaupthing Singer & Friedlander (Isle of Man) – in other words, depositors are not covered by the EC Directive.

As a result, it would not have been appropriate to include conditions related to depositors of Landsbanki Guernsey and Kaupthing Singer & Friedlander (Isle of Man) in discussions around the Icesave loan.

Landsbanki Guernsey

Regulatory oversight of Landsbanki Guernsey is the responsibility of Guernsey’s regulator, the Financial Supervision Commission. Arrangements for depositors in Landsbanki Guernsey are a matter for the Government of Guernsey.

Deloitte, the administrator of Landsbanki Guernsey, has also already made a part-payment to depositors. Any further payments are a matter for Landsbanki Guernsey’s administrators (opens in new browser window).

Kaupthing Singer & Friedlander (Isle of Man)

In July 2009, the Isle of Man parliament approved a £193m package to hasten compensation payments to savers of Kaupthing Singer & Friedlander (Isle of Man) under its Depositors' Compensation Scheme.

Oversight of Kaupthing Singer & Friedlander (Isle of Man) is the responsibility of the Isle of Man’s regulator, the Financial Supervision Commission. Arrangements for depositors in Kaupthing Singer & Friedlander (Isle of Man) are therefore a matter for the Government of the Isle of Man.

For further information, customers should refer to the Financial Services Authority (FSA) or the Isle of Man’s Financial Supervision Commission (FSC). Full contact details are available at the base of this factsheet.

6. Where do I go for further information?

Financial Services Compensation Scheme:
Financial Services Compensation Scheme
7th floor, Lloyds Chambers
Portsoken Street
London E1 8BN
Phone: 0800 678 1100, or 0207 741 4100
Fax: 020 7892 7301
Ernst & Young LLP - administrators for UK subsidiaries of Icelandic banks:
- Heritable (UK subsidiary of Landsbanki): 020 7493 6621
- Kaupthing Singer & Friedlander UK (UK subsidiary of Kaupthing): 020 3205 6800
Financial Services Authority (FSA):
25 The North Colonnade, Canary Wharf, London E14 5HS
Phone: 0845 606 1234
Email: consumer.queries@fsa.gov.uk
Isle of Man Financial Supervision Commission (FSC):
PO Box 58, Finch Hill House, Bucks Road, Douglas, Isle of Man IM99 1DT
Phone: 01624 689 300