Tuesday, October 07, 2008
this seems trivial -- iceland? seriously? -- but a banking collapse here will feed back through britain and around the world.
Icelandic banks have lent hundreds of billions of pounds overseas and their position in the world’s financial system far outweighs the size of the country’s tiny economy, the GDP of which was only $20 billion last year.
The country’s banks have been under pressure for most of the year, struggling with rampant inflation, the collapsing value of the currency and fallout from an overheated economy.
... Savers in Britain also face fallout from the collapse of the Icelandic banking system. Fears mounted yesterday among the 300,000 British savers holding bank accounts with Landsbanki that their deposits were at risk. In the event of a collapse, savers with Kaupthing are entitled to compensation of up to £50,000 from the British authorities - as much as depositors in any British bank - but British savers with Landsbanki are not.
British savers tempted into high-interest Icesave accounts would have to rely on a much smaller Icelandic government fund to guarantee their first £16,317 of savings should Icesave collapse, with Britain only picking up the remaining £33,483 under the government depositor guarantees.
...Icelandic banks have lent money to British retailing and pub groups, raising fears that their collapse could lead to a firesale of British assets. Baugur, the Icelandic investment group that owns stakes in House of Fraser, Debenhams, Woolworths, Moss Bros, French Connection and the supermarket chain Iceland, said that its British businesses were not affected. But well-placed City sources said that Baugur had held private discussions about selling some assets and persuading banks to lend fresh money against others. “There are covert conversations taking place,” one source said.