Bank Failures, State Liability, and Protection of Depositors in Foreign Branches: EFTA Surveillance Authority v. Iceland

Abstract

One of the most prominent European bank failures in the global financial crisis was the collapse of the Icelandic bank Landsbanki, where foreign depositors were left without coverage by the Icelandic deposit guarantee scheme. The present note discusses a recent judgment by the Court of the European Free Trade Association, which dealt with the question whether Iceland should be liable for failing to ensure protection for foreign depositors. The Court answered in the negative. A close look at the legal and policy arguments used by the Court raises concerns as to potential long-term implications, should the same approach be followed in future cases. Significant parts of the judgment appear inconsistent with the increasing degree of harmonisation of deposit insurance (and more broadly, bank resolution) at EU level.