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Treasury defends Landsbanki action

The 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 response follows the Treasury select committee’s report in April, which 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 deemed the UK Government’s approach “unhelpful” to the Icelandic authorities.

But the Treasury claims it was justified in taking urgent action and that decisions were made 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 European Economic Area Treaty.”

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