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Treasury defends action over failure of Icelandic banks

HM Treasury has defended its response to the collapse of the Icelandic banking system last year saying it was right to take urgent action to protect financial stability in the UK.

The comments are made in response to the Treasury Select Committee’s report into the failure of the Icelandic banks which was published in April.

In the report, the TSC said that in making statements on the willingness of the Icelandic Government to provide assistance to non-Icelandic citizens, the UK Government had gone from being a passive observer of events, to an active participant in the market.

It said the UK Government’s approach was “unhelpful” to the Icelandic authorities.

But the Treasury has defended its position saying it was right to take urgent action and that decisions were taken to protect UK depositors after extensive conversations with the Icelandic Government.

The Treasury says: “In relation to the UK branch of Landsbanki, despite assurances from the Icelandic Government that it would honour its
obligation to provide protection for the depositors of that branch (as is required under the EC Deposit Guarantee Scheme Directive), the UK Government was unable to gain clarity around the practical arrangements by which Iceland would be able to meet these commitments.

“The position of UK creditors in the administration of Landsbanki was
also unclear. This was of serious concern as certain statements made by the Icelandic Prime Minister indicated that while Icelandic depositors would be protected, the rights of other depositors and creditors, including those in the UK, could be prejudiced — which would be discriminatory and a breach of the EEA Treaty. The UK Government took the action it did in the light of these concerns.”

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