Inside Story: Iceland

In the autumn of 2008 the Icelandic financial system faced severe difficulties. The failure of the country’s three largest banks, Kaupthing Bank (“Kaupthing”), Glitnir Bank (“Glitnir”) and Landsbanki (“LBI”), led to them being taken over by the Icelandic Financial Supervisory Authority under new powers granted by Act No 125/2008 on the Authority for Treasury Disbursements due to Unusual Financial Market Circumstances. The legal framework for dealing with the insolvency of banks and other financial institutions in Iceland is set out in Act No 161/2002 on Financial Undertakings (the “Financial Undertakings Act”), and Act No 21/1991 on Bankruptcy etc. (the “Bankruptcy Act”).