REYKJAVIK (Reuters) - A former prime minister and central bank head and five other former officials acted with “gross negligence” in failing to prevent Iceland’s banking collapse in 2008, an official investigation found on Monday.
The Special Investigation Commission report also heavily criticized Iceland’s former top three banks, which it said had been run more for the benefit of their powerful businessmen owners rather than creditors or other shareholders.
The banks collapsed in late 2008 under the weight of debts built up during a decade of rapid overseas expansion, dragging the north Atlantic island of 320,000 people into a financial and economic crisis from which it has yet to recover.
“The private banks failed, the supervisory system failed, the politics failed, the administration failed, the media failed, and the ideology of an unregulated free market utterly failed,” Prime Minister Johanna Sigurdardottir said in a statement after the report was released.
The investigation pointed the finger firmly at seven officials including then-prime minister Geir Haarde and former central bank chief David Oddsson.
“The Commission finds that these seven have demonstrated gross negligence in the discharge of their duties,” commission chairman Pall Hreinsson told reporters.
“They had the necessary information, but did not act accordingly, each pointing the finger at the next person,” he said. The commission’s 2,000-page report is the first official, in-depth examination of the crisis.
Hreinsson said a parliamentary panel would decide whether legal action was taken against the individuals.
They also included Oddsson’s co-governors, Eirikur Gudnason and Ingimundur Fridriksson, former finance minister Arni Mathiessen, former banking minister Bjorgvin Sigurdsson, and Jonas Jonsson, ex-director of the financial services watchdog.
Following the criticism, Sigurdsson said he would resign as head of the Social Democratic party’s parliamentary group.
The financial crisis brought down Haarde’s government. Sigurdardottir, whose center-left Social Democrat Alliance was a junior partner in coalition with Haarde but was not blamed for the crisis, won an election in April 2009.
She heads a coalition government and has promised reforms to the financial system, which collapsed after a decade of overseas expansion during which banks supported a raft of Icelandic firms in ambitious plans to grab an international presence.
The committee said the banks’ lending practices were run to maximize benefits to the main shareholders, not other investors and creditors.
Sigridur Benediktsdottir, one of three authors of the report, said the banks’ main owners — leading Icelandic businessmen — had had “abnormally easy access to loans.”
Cross-shareholdings between banks themselves, and between banks and major firms, obscured risks in the financial system and increased the cost of the collapse, she said.
While a number of banks in other countries went under or had to be propped up by governments following the collapse of Lehman Brothers in 2008, Iceland’s whole financial system broke down.
When Glitnir, Landsbanki and Kaupthing were taken over by the state, their combined balance sheets were around 10 times the size of Iceland’s economy, meaning the authorities were unable to bail them out.
The crash left Iceland dependent on overseas aid, led by the International Monetary Fund (IMF). It is also saddled with more than $5 billion in debt to the Britain and the Netherlands that has complicated its economic recovery plans.
Writing by Simon Johnson in Stockholm, Editing by Kevin Liffey