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Agreement with estates of failed banks unveiled: Will pay 3.8 billion USD in stability payment

By Staff

  • 490-600 billion ISK The estates of the collapsed banks will hand over most of their Icelandic assets to the government as a stability payment. The agreement is a precondition for the completion of the winding-up of the estates and the lifting of capital controls. Photo/Valgarður Gíslason

Yesterday Bjarni Benediktsson, the Minister of Finance and Már Guðmundsson, the Director of the Central Bank of Iceland unveiled their proposal for an agreement with the estates of the collapsed banks which would grant them an exemption from the currency controls and allow for the conclusion of the winding up of the estates. The total value of the agreement is at least 807 billion ISK (6.3 billion USD/5.7 billion EUR). (English summary of the package can be accessed here.)

Read more: Agreement with estates of collapsed banks will reduce net debt position to below 10% of GDP

The package allows the government to begin lifting the capital controls, which have been in place since the financial crash of 2008 and the completion of the winding up of the estates of the banks which collapsed in the crash.

A direct stability payment valued at 490-600 billion ISK
According to the agreement, the estates of the collapsed banks will pay 490 billion ISK (3.8 billion USD/3.5 billion EUR) directly to the treasury. This figure could rise to as much as 600 billion ISK, as the assets which the estates of the collapsed banks have agreed to hand over could appreciate in value. The assets the estates have agreed to hand over include claims on Icelandic counterparties and shares in Íslandsbanki, owned by the estate of collapsed Glitnir.

Most of the stability payment comes from Glitnir, 229 billion ISK (1.8 billion USD/1.6 billion EUR), with Kaupþing paying 127 billion ISK (1 billion USD/0.9 billion EUR) and Landsbankinn 46 billion ISK (360 million USD/330 million EUR). The estates will also pay 46 billion in various taxes and costs.

The agreement is composed of three basic components. First there is a stability payment which is valued at 491-599 billion ISK (3.8-4.7 billion USD/3.5-4.3 billion EUR), composed of assets the estates hand over to the state, primarily claims on Icelandic individuals and the stake Glitnir owned in Íslandsbanki. Secondly the estates commit to long-term foreign financing of the Icelandic banks, estimated at 239 billion ISK (1.9 billion USD/1.7 billion EUR). Finally the estates will repay 74 billion ISK (570 million USD/520 million EUR) in loans granted by the state and the central bank to the three domestic banks when they were established.

A historic agreement
At the press conference, which was held in Hannesarholt in downtown Reykjavík, the Minister of Finance described the plan as “the greatest economic program ever unveiled in Iceland”. In an interview with the Icelandic National Broadcasting Service the Prime Minister made an even bolder claim, arguing the plan was unprecedented in world history: “There is no doubt this is the largest economic program in Icelandic history, but this is actually also an agreement of world historical proportions. All the foreign experts who have worked on this project with us have said that something like this has never happened before, that the foreign claimants financed the lifting of capital controls”.

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