Iceland:  Ministry for Foreign Affairs

Yale University

Yale University EliScholar – A Digital Platform for Scholarly Publishing at Yale YPFS Documents Browse by Media Type 2014 Iceland Ministry for Foreign Affairs Icesave Q&A Iceland: Ministry for Foreign Affairs Follow this and additional works at: https://elischolar.library.yale.edu/ypfs-documents Recommended Citation Iceland: Ministry for Foreign Affairs, "Iceland Ministry for Foreign Affairs Icesave Q&A" (2014). YPFS Documents. 410. https://elischolar.library.yale.edu/ypfs-documents/410 This Document is brought to you for free and open access by the Browse by Media Type at EliScholar – A Digital Platform for Scholarly Publishing at Yale. It has been accepted for inclusion in YPFS Documents by an authorized administrator of EliScholar – A Digital Platform for Scholarly Publishing at Yale. For more information, please contact elischolar@yale.edu. 8/26/2015 Questions and Answers | Icesave | Issues | Ministry for Foreign Affairshttp://www.mfa.is/tasks/icesave/q­­a/ 1/5Questions and AnswersWhat is the Icesave dispute about? (#)As a part of a tumultuous worldwide financial crisis, Landsbanki's depositors at the branches inthe Netherlands and the United Kingdom lost access to their deposits on 6 October 2008.Consequently, Iceland's Depositors' and Investors' Guarantee Fund (“TIF” or “Fund”)(/tasks/icesave/glossary/#tif) was obliged, in principle, to pay out the minimum guarantee perdepositor in accordance with the rules and time­limits set out in the Icelandic law implementingDirective 94/19/EC (“the Directive”) (/tasks/icesave/glossary/#directive). However, no suchpayments were made to those depositors. In fact, TIF (/tasks/icesave/glossary/#tif) was unable toas its funds were limited.By its application, the EFTA Surveillance Authority (“ESA”) (/tasks/icesave/glossary/#esa) seeksto establish that Iceland has failed to comply with its obligations resulting from the Directive(/tasks/icesave/glossary/#directive) as it failed to ensure payment of the minimum amount ofcompensation to Icesave (/tasks/icesave/glossary/#icesave) depositors in the Netherlands and inthe United Kingdom within the given time­limits. At the heart of the dispute is whether there isan obligation of result upon Iceland to ensure that depositors are compensated as set out in theDirective (/tasks/icesave/glossary/#directive) if all else should fail. The parties also disputewhether, in the event that such an obligation exists, Iceland is excused by virtue of force majeure.The other matter at dispute is whether by treating depositors with domestic accounts differentlyfrom depositors holding accounts at Landsbanki branches in other EEA States, Iceland hasinfringed Articles 4(1) and 7(1) of the Directive (/tasks/icesave/glossary/#directive) and/or Article4 EEA. In the event of such an infringement, the parties also dispute whether this difference intreatment must be regarded as objectively justified.What was the nature of the economic collapse in Iceland? (#)The scale and scope of the economic collapse in Iceland (/tasks/icesave/glossary/#financial_crash)is unprecedented. In a span of a few days in October 2008 Iceland's three largest banks collapsed.The three banks represented 85% of Iceland's banking sector. In the next six months almost allother financial institutions in the country either collapsed or underwent restructuring. At thesame time Iceland's currency depreciated severely in value and Iceland had to implement strictcapital controls to prevent an impending total collapse of the currency. Unemployment spiked,house prices collapsed, inflation spiraled, corporate and household insolvencies multiplied andsignificant political turmoil ensued.What is Iceland's defence regarding the alleged Directive obligation? (#)In essence, Iceland contends that the Directive (/tasks/icesave/glossary/#directive) imposes noobligation of result on the State to use its own resources in order to guarantee the pay­out of adeposit­guarantee scheme in the event that “all else fails”. The obligations incumbent upon theState are limited to ensuring the proper establishment, recognition and a certain supervision of adeposit­guarantee scheme (/tasks/icesave/glossary/#tif).8/26/2015 Questions and Answers | Icesave | Issues | Ministry for Foreign Affairshttp://www.mfa.is/tasks/icesave/q­­a/ 2/5In the alternative, Iceland submits that even if the Directive (/tasks/icesave/glossary/#directive)did impose strict obligations upon the State to fund the guarantee scheme in the event of itscollapse, which is disputed, Iceland was prevented from doing so by force majeure.What is Iceland's defence regarding the alleged discrimination? (#)Iceland submits that it did not breach the principle of non­discrimination. Iceland contends thatESA's (/tasks/icesave/glossary/#esa) application does not argue for equal treatment. Instead ESA(/tasks/icesave/glossary/#esa) argues for different treatment of allegedly comparable situations. Assuch the basis of the claim is incoherent. ESA (/tasks/icesave/glossary/#esa) has also failed toidentify the legal basis for the application of the rules on non­discrimination contained in the EEA(/tasks/icesave/glossary/#esa) Agreement to the specific facts of this case. Furthermore, ESA's(/tasks/icesave/glossary/#esa) argument amounts to an impermissible attempt to extend thespecific requirements of the Directive (/tasks/icesave/glossary/#directive). Even if any prima faciediscrimination occurred, which Iceland disputes, it was none the less justified.Who are parties to the case before the EFTA Court? (#)ESA (/tasks/icesave/glossary/#esa) and Iceland are the primary parties. The EuropeanCommission has intervened in support of ESA (/tasks/icesave/glossary/#esa). There are no otherparties to the case.Why is the Icesave issue before the EFTA Court? (#)ESA (/tasks/icesave/glossary/#esa) brought the case before the EFTA Court(/tasks/icesave/glossary/#efta_court). In accordance with the EEA (/tasks/icesave/glossary/#eea)Agreement, its implementation is monitored by ESA (/tasks/icesave/glossary/#esa). ESA(/tasks/icesave/glossary/#esa) has the right to bring infringement actions before the EFTA Court(/tasks/icesave/glossary/#efta_court). ESA's (/tasks/icesave/glossary/#esa) role is thus similar to thatof the European Commission with respect to the EU.What is ESA seeking? (#)ESA (/tasks/icesave/glossary/#esa) is seeking a declaration that Iceland breached EEA(/tasks/icesave/glossary/#eea) law by failing to ensure payment of the EUR 20 000 minimumamount of compensation to Icesave (/tasks/icesave/glossary/#icesave) depositors in theNetherlands and the UK within the time limits laid down in the Directive.Are the UK and the Netherlands parties to the dispute? (#)No. They are not parties. They have, however, lodged written observations to the EFTA Court(/tasks/icesave/glossary/#efta_court) concerning the case. Norway and Lichtenstein have alsolodged such observations.Have the UK and the Netherlands made formal claims on Iceland? (#)No. The UK and the Netherlands have not made any such claims. The proper venue for theproceeding of such claims is the Reykjavík District Court.How was TIF funded compared to other deposit guarantee schemes in Europe? (#)TIF (/tasks/icesave/glossary/#tif) was not able to pay the amount of insured deposits in theIcesave (/tasks/icesave/glossary/#icesave) accounts. The insured amounts were equal to 30 timesthe existing funds of TIF (/tasks/icesave/glossary/#tif) at the time. Nonetheless the TIF(/tasks/icesave/glossary/#tif) was set up and funded entirely in accordance with EU regulations8/26/2015 Questions and Answers | Icesave | Issues | Ministry for Foreign Affairshttp://www.mfa.is/tasks/icesave/q­­a/ 3/5and norms. No deposit guarantee fund in Europe could have withstood a system­wide bankingcrisis of the magnitude that Iceland faced in October 2008(/tasks/icesave/glossary/#financial_crash). A recent study by the University of Iceland(/media/icesave­2011­12/Relative­size­of­the­Icesave­claims­and­financial­strength­of­the­deposit­guarantee­schemes­in­the­EU­and­Iceland.pdf) has shown, that in the event of such as crisis, the costsfor European states to provide funding in a time of crisis to deposit guarantee schemes wouldaverage 83% of gross domestic product (GDP). In the time of a systematic financial crisis, thiswould be beyond the abilities and remit of almost all governments.Why were Icesave depositors not treated the same as Icelandic depositors? (#)In October 2008 (/tasks/icesave/glossary/#financial_crash) there was an emergency in Iceland as85% of the banking sector had collapsed with its three major banks subject to a run. To respond,Iceland set up new banks to assume the collapsed banks' obligations with respect to systemicdeposits at Icelandic branches, implemented capital controls, etc. This allowed Iceland to avert alarge scale catastrophe and prevent a full scale run on the Icelandic branches of the collapsedbanks.The situation was different for the Icesave (/tasks/icesave/glossary/#icesave) deposits in the UKand the Netherlands branches. The run on them was already under way and the IcelandicAuthorities had no resources to stop or even slow the run on deposits. As a result, Iceland did notengage in a bank restructuring of the UK and the Netherlands branches like it did with respect tothe Icelandic branches.Have Icesave depositors received any payments on their deposits? (#)Yes. The Icesave (/tasks/icesave/glossary/#icesave) depositors in the UK have received fullrepayments and the Netherlands depositors have received compensation of EUR 100 000 or wellin excess of the EUR 20 000.Certain Landsbanki wholesale depositors in the UK, such as certain charities, endowments andlocal governments, did not receive any such payments as they were not covered by the UKdeposit guarantee scheme. However, due to partial payments commenced by the Estate ofLandsbanki in December 2011 these depositors have already received payments amounting toapproximately 50% of the total claim, well in excess of the EUR 20 000 minimum.Who paid the Icesave Depositors? (#)The Netherlands and the UK made the payments. The Netherlands and UK authorities organisedfor Icesave (/tasks/icesave/glossary/#icesave) depositors to file claims with the deposit­guaranteescheme in the Netherlands and the United Kingdom. The UK Government arranged for the pay­out of all retail depositors in full, while the Netherlands Government arranged for thecompensation of all depositors to a maximum of EUR 100 000.Why did the UK and the Netherlands organise the pay­out and compensation of the IcesaveDepositors? (#)These authorities have stated that they wanted to avoid a potential instability and even a run onbank deposits in their own markets.Will the UK and the Netherlands recover their funds? (#)Yes. They are expected to recover their funds in full from the Landsbanki estate, due to Icelandicmeasures taken in 2008 (/tasks/icesave/glossary/#the_emergency_law).8/26/2015 Questions and Answers | Icesave | Issues | Ministry for Foreign Affairshttp://www.mfa.is/tasks/icesave/q­­a/ 4/5As part of the emergency measures (/tasks/icesave/glossary/#the_emergency_l) enacted to dealwith the Icelandic bank collapse in 2008 bank deposits were granted priority ranking in the banks'winding up proceedings. The priority applies to most deposits, including the Icesave(/tasks/icesave/glossary/#icesave) deposits. Furthermore, the priority is not subject to a limitationand covers all deposits in full, even in excess of the EUR 20 000 minimum under the Directive(/tasks/icesave/glossary/#directive).The UK and the Netherlands have, as a consequence, priority claims on the Landsbanki estate forall the funds used for the benefit of Icesave depositors. Such priority claims are expected to berepaid in full out of the estate.When will the UK and the Netherlands receive their recovery from the Landsbanki estate? (#)The UK and the Netherlands have already received approximately 50% of their total claim of ISK1 100 billion (including “top­up” claims and amounts in excess of the insured deposits). It isexpected that the estate of the failed bank will have paid out priority claims in full in the next fewyears.How much have the UK and the Netherlands already recovered from the Landsbanki estate? (#)They have received approximately 50% of their total claim of ISK 1 100 billion (including “top­up” claims and amounts in excess of the insured deposits). The part of the claim whichcorresponds to the EUR 20 000 covered by the Directive equals ISK 650 billion.What about the deposits of charities, endowments and local governments? (#)Their deposits also enjoy priority standing in the Landsbanki winding up. As a consequence, theyhave by now received distributions from Landsbanki covering approximately 50% of theirdeposits and stand to receive full repayment in due course.Deposits made by these depositors typically far exceeded the EUR 20 000 minimum covered bythe Directive (/tasks/icesave/glossary/#directive). These depositors have therefore already receivedpayments well in excess of the EUR 20 000 minimum.What are the Icesave Agreements? (#)The Icelandic Government sought to settle Iceland's bi­lateral relations with the UK and theNetherlands by negotiating with their governments.Three times the Icelandic Parliament passed an act authorizing the Government to concludeagreements (/tasks/icesave/glossary/#icesave_agreements) with UK and the Netherlands. The firstact was subject to conditions which were later rejected by the UK and the Netherlands. TheIcelandic President referred the second two to referendum. The first one was rejected by anoverwhelming majority of 92% and the second one was rejected by a majority of 60%. This meansthat no agreement exists between the three States.When will the EFTA Court come to a conclusion on the issue? (#)The public sitting for the delivery of the judgment of the EFTA Court(/tasks/icesave/glossary/#efta_court) will be held on Monday, 28 January 2013. Payments willcontinue from the Landsbanki estate regardless of the finding of the EFTA Court(/tasks/icesave/glossary/#efta_court).What is the EEA Agreement? (#)8/26/2015 Questions and Answers | Icesave | Issues | Ministry for Foreign Affairshttp://www.mfa.is/tasks/icesave/q­­a/ 5/5In all practical terms the EEA (/tasks/icesave/glossary/#eea) Agreement extends the EU's internalmarket to the three EFTA (/tasks/icesave/glossary/#efta) states that are parties to the Agreement.The EFTA (/tasks/icesave/glossary/#efta) states have set up an institutional set­up similar to thatof the EU, albeit much smaller in scale, to monitor compliance with the EEA(/tasks/icesave/glossary/#eea) Agreement. ESA (/tasks/icesave/glossary/#esa) and the EFTA Court(/tasks/icesave/glossary/#efta_court) are a part of this institutional set­up.

Iceland Ministry for Foreign Affairs  Icesave Q&A

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Iceland Ministry for Foreign Affairs Icesave Q&A

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