Please read this article in the Telegraph and comment
Possibly the best article yet, realistic and factual. Please add your comments, this is a REAL newspaper not an obscure blog site, this is what the general public can see.
Rowena Mason writes about energy for the Daily and Sunday Telegraph.
FSA needs a shred more than hand wringing over Iceland's banking implosion
By Rowena Mason Economics Last updated: August 18th, 2009
Sir Fred Goodwin is hardly beloved of the British public. But imagine just for a second how we would feel if the former RBS boss had been dishing out loans of £1bn plus to himself, his mates and their companies. People might want to chop off more than his pension.
Now picture a fictional scenario where there were senior staff at RBS, with very little prior experience in banking, who had been throwing around interest-free loans to related parties to buy shares in the bank itself that were written off when it collapsed. What if the Government was unable to bail it out, triggering defaults that spanned across the globe? Then there might be rumours swirling round about HBOS, Bradford and Bingley and Northern Rock, sparking fears that the whole British banking system was based on hot air and money plucked out of nowhere.
Landsbanki's savings account icesave took in millions from Brits
There is no suggestion, of course, that any UK bank behaved in quite such reckless manner. But a bank operating on British soil?
Well I can think of three for starters. Leaks flowing out of Iceland over the last couple of weeks about the unusual practices of its failed banks, Kaupthing, Landsbanki and Glitnir, ought to prove very uncomfortable for British regulators. These are the failed banks that took £1bn in deposits from UK local authorities equivalent to 5pc of all our council tax bills and whose internet operations collected about £7.5bn from UK savers.
The parent banks of Kaupthing Edge, supposedly regulated by our Financial Services Authority, and Landsbanki’s Icesave, regulated in Iceland, are currently under investigation in their home country for allegedly excessive loans to their directors and owners. The largest, Kaupthing, is under scrutiny for allegedly operating a complex share support system that may have manipulated the market.
No wonder enraged Icelanders are chucking red paint at the bankers’ mansions. They have soaring unemployment, aggressive budget cuts, restrictive conditions imposed by the International Monetary Fund and a decimated financial system. Dr Jon Danielsson of the London School of Economics estimates that between 60pc and 80pc of all Icelandic business could be technically bust.
It now looks likely that the overwhelming £2.3bn cost of bailing out British customers of Landsbanki’s Icesave internet accounts up to 22,887 euros per person (£19,623) will fall on this tiny country’s shoulders.
The mess is not all Iceland’s fault, despite the claims of the UK Financial Services Authority that it was powerless to stop the foreign banks from setting up a branch – Icesave – and a subsidiary – Kaupthing Edge – to target British customers. It also claims that it could not stop Kaupthing from taking over the British bank Singer & Friedlander, from which the Edge accounts were born in early 2008, because they had to take the word of the Icelandic regulator that these banks were safe.
So the FSA (staff 2,800) relied on the say-so of the Icelandic FME (staff 50) despite the fact that some analysts, journalists and economists were warning that the country’s financial system was looking precarious? Did they take a look at the banks’ annual reports showing loans to related parties running into hundreds of millions? Was there any concern that the web of cross-holdings and opaque structure of investment vehicles behind the banks could collapse like a house of cards? And lastly, why should we put our complete faith in another regulator to monitor banking services conducted the UK just because its country is a member of the European Economic Area?
The leaks and whistleblowing over the last couple of weeks ought to prompt the Financial Services Authority to engage in a little bit of introspection: the operations of the Icelandic banks in London cost the Treasury billions with uncertain hope of clawing much of this back. I’ll eat my favourite hat (a trilby, not very tasty-looking) if the FSA admits any culpability in public, but I’d like to think there might at least be hand-wringing behind closed doors – and even some plans to consider how foreign subsidiaries or branches might be better monitored in future.
Ps: We’ve set up a page to keep track of the unfolding Iceland story