Iceland’s banks faced a battle for survival yesterday, after the country’s government introduced emergency legislation to give the government sweeping new powers over its collapsing financial sector.
The government’s attempt to wrest control of the increasingly dire situation and restore some confidence in the country’s hard-hit banking sector followed a day of panic on Monday that saw trading in shares of major banks suspended and the Icelandic krona fall a quarter against the euro.
Icelandic Prime Minister Geir Haarde warned late on Monday that the heavy exposure of the tiny country’s banking sector to the global financial turmoil was raising the specter of “national bankruptcy.”
Iceland is paying the price for an economic boom of recent years that saw its newly affluent companies go on an acquisition spree across Europe and its banking sector grow to dwarf the rest of the economy.
Bank assets are nine times annual GDP of 14 billion euros (US$19 billion).
Investors are now punishing the whole country for the banking sector’s heavy exposure to the global credit squeeze — its currency has gone through the floor, imports have fallen and inflation is soaring.
A major fear is that the government will struggle to rescue any other failing banks after last week coming to the rescue of the country’s third-largest bank, Glitnir.
“In the perilous situation which exists now on the world’s financial markets, providing the banks with a secure life line poses a great risk for the Icelandic nation,” Haarde said in a televised address to the nation. “There is a very real danger, fellow citizens, that the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could be national bankruptcy.”
The new laws will give the Central Bank of Iceland and the Icelandic Financial Supervisory Authority detailed and vast authority to intervene in the control and operation of Icelandic financial institutions, including the ability to take over or create new institutions, call shareholder meetings and limit the authority of boards.
Haarde told reporters that the government would not be closing banks, but foreshadowed the government taking control of more banks.
“We will not be closing banks but it is conceivable that some of them will not be able to function without our authorities intervening,” he told reporters, declining to name any potential candidates.
Earlier on Monday, the Icelandic Financial Supervisory Authority suspended trading in financial instruments issued by Kaupthing, Landsbanki, Glitnir, Straumur-Burdaras, Exista and Spron, saying that “uncertainties regarding the issuers are likely to disrupt normal price formation, and as such, any trading could be detrimental for investors.”
The government also put 100 percent guarantees on savers’ deposits, following in the footsteps of Ireland, Germany, Austria, Greece and Denmark.
A collapse of the Icelandic financial system could also have ramifications across Europe given the heavy investment by Icelandic banks and companies across the continent.
One of the country’s biggest companies, retailing investment group Baugur, now owns or has stakes in dozens of major European retailers — including enough to make it the largest private company in Britain, where it owns a handful of well-known stores such as the famous toy store Hamley’s.
Kaupthing, Iceland’s largest bank and one of those whose share trading was suspended on Monday, has also invested in European retail groups.
Part of problem is that Iceland’s tiny size has led to a high level of cross-ownership of assets between banks and companies, which creates a house of cards scenario.
In that eventuality, the central bank with its liquid foreign assets of just US$5.5 billion will be hard pressed to make any more bailouts — the big four banks have combined foreign liabilities in excess of US$137 billion.
Those concerns led all the major credit ratings agencies to downgrade Iceland’s sovereign, or government, credit rating last week.
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
Taiwan has experienced its most significant improvement in the QS World University Rankings by Subject, data provided on Sunday by international higher education analyst Quacquarelli Symonds (QS) showed. Compared with last year’s edition of the rankings, which measure academic excellence and influence, Taiwanese universities made great improvements in the H Index metric, which evaluates research productivity and its impact, with a notable 30 percent increase overall, QS said. Taiwanese universities also made notable progress in the Citations per Paper metric, which measures the impact of research, achieving a 13 percent increase. Taiwanese universities gained 10 percent in Academic Reputation, but declined 18 percent
UNDER DISCUSSION: The combatant command would integrate fast attack boat and anti-ship missile groups to defend waters closest to the coastline, a source said The military could establish a new combatant command as early as 2026, which would be tasked with defending Taiwan’s territorial waters 24 nautical miles (44.4km) from the nation’s coastline, a source familiar with the matter said yesterday. The new command, which would fall under the Naval Command Headquarters, would be led by a vice admiral and integrate existing fast attack boat and anti-ship missile groups, along with the Naval Maritime Surveillance and Reconnaissance Command, said the source, who asked to remain anonymous. It could be launched by 2026, but details are being discussed and no final timetable has been announced, the source
SHOT IN THE ARM: The new system can be integrated with Avenger and Stinger missiles to bolster regional air defense capabilities, a defense ministry report said Domestically developed Land Sword II (陸射劍二) missiles were successfully launched and hit target drones during a live-fire exercise at the Jiupeng Military Base in Pingtung County yesterday. The missiles, developed by the Chungshan Institute of Science and Technology (CSIST), were originally scheduled to launch on Tuesday last week, after the Tomb Sweeping Day holiday long weekend, but were postponed to yesterday due to weather conditions. Local residents and military enthusiasts gathered outside the base to watch the missile tests, with the first one launching at 9:10am. The Land Sword II system, which is derived from the Sky Sword II (天劍二) series, was turned