Icelandic Authorities Research Articles

Hagnýting persónuupplýsinga á Facebook hjá eftirlitsstofnunum

Markmið rannsóknarinnar var að kanna hvernig upplýsingar, sem aflað var á Facebook, væru nýttar við opinbert eftirlit með einstaklingum hér á landi. Tilgangur rannsóknar var meðal annars að varpa ljósi á formlega og óformlega notkun slíkra upplýsinga og greina umfang hennar. Við rannsóknina voru tekin hálfstöðluð viðtöl við sérfræðinga sem störfuðu hjá tilteknum úrskurðar- eða eftirlitsstofnunum. Þá átti sér stað greining á stjórnvaldsúrskurðum til þess að kanna hvernig stofnanir byggðu ákvarðanir á upplýsingum sem aflað var á Facebook. Niðurstöður rannsóknarinnar sýndu að upplýsingar á Facebook hafa verið nýttar við opinbert eftirlit hér á landi. Slíkar upplýsingar hafa verið formleg ákvörðunarástæða í einhverjum tilvikum. Þá kom í ljós að stofnanir, sem tóku þátt í rannsókninni, höfðu einnig nýtt upplýsingar með óformlegum hætti meðal annars til þess að fá betri tilfinningu fyrir tilteknum málum, bera kennsl á einstaklinga, afla upplýsinga um ferðir þeirra, eða til þess að hafa uppi á fólki.

Yfirfærsla á málaflokki fatlaðs fólks frá ríki til sveitarfélaga: Með sérstakri áherslu á stærsta sveitarfélagið, Reykjavík

Markmið rannsóknarinnar var að skoða hvernig yfirfærsla á málaflokki fatlaðs fólks frá ríki til sveitarfélaga hefði gengið fyrir sig. Heildarferli yfirfærslunnar var skoðað og síðan var eitt sveitarfélag, Reykjavíkurborg, valið og skoðað nánar með tilliti til stefnu og framkvæmdar á þjónustunni við fatlað fólk. Um var að ræða eigindlega rannsókn sem fór fram haustið 2012. Tekin voru átta viðtöl við fagaðila sem höfðu komið beint að vinnu við yfirfærsluna eða unnið við málaflokkinn fyrir og eftir yfirfærslu. Tekið var viðtal við starfsmenn hjá velferðarráðuneytinu og hjá Sambandi íslenskra sveitarfélaga. Þjónustumiðstöðvar Reykjavíkurborgar eru sex talsins, eitt viðtal var tekið á hverri þjónustumiðstöð og leitast var við að fá viðmælanda sem var hvað mest inni í málaflokknum. Helstu niðurstöður voru þær að viðmælendur töldu almennt séð rétt að ráðist skyldi hafa verið í yfirfærsluna. Þeir töldu að þjónusta í nærsamfélaginu væri heppilegri kostur og nú þyrfti þjónustuþeginn aðeins að fara á einn stað til þess að sækja sér þjónustu, jafnvel þó að ekki hefðu orðið eins miklar framfarir í þjónustunni og búist hefði verið við. Þeir töldu þó að töluvert fjármagn vantaði í málaflokkinn til að tryggja viðeigandi þjónustu og að yfirfærslan hefði ekki verið nægilega vel undirbúin. Viðmælendur voru á því að þverfagleg vinna gengi vel í málaflokknum.

Athafnafólk í opinberri stefnumótun á óvissutímum: Hvernig hugmyndin um notendastýrða persónulega aðstoð varð að veruleika á Íslandi

Þessi rannsókn leitast við að útskýra tímamótaákvörðun í þjónustu við fatlað fólk á Íslandi. Opinber stefnumótun hefur löngum einkennst af hægfara breytingum, sem gerast í smáum skrefum. Stundum bregður þó svo við að meiriháttar breytingar verða og stefnumál, sem verið hefur baráttumál hagsmunahópa um margra ára skeið, ná fram að ganga. Dagskrárkenningar leitast við að útskýra meiriháttar stefnubreytingar með því m.a. að beina athyglinni að því hvernig og hvers vegna tiltekin málefni koma til kasta stjórnvalda á hverju tíma. Bandaríski stjórnmálafræðingurinn, John W. Kingdon, setti fyrst fram kenningu sína um straumana þrjá og glugga tækifæranna fyrir rúmum 30 árum. Nýlegar rannsóknir evrópskra stjórnmálafræðinga halda því nú fram að nálgun Kingdons geti varpað ljósi á það hvernig það pólitíska kerfi sem stefnumótunin fer fram í virkar og hvernig hegðun og aðferðir þátttakenda í ferlinu hafa áhrif. Í þessari eigindlegu rannsókn er skoðað hvernig hugmyndin um notendastýrða persónulega aðstoð (NPA) varð að veruleika á Íslandi. Rannsóknin byggir á fyrirliggjandi gögnum og viðtölum við lykilfólk um þá framvindu mála sem leiddi til ákvörðunar um að innleiða NPA hér á landi. Rannsóknin lýsir því hvernig og undir hvaða kringumstæðum NPA komst á dagskrá stjórnvalda. Niðurstöðurnar sýna hvernig breytingar á verkaskiptingu milli ríkis og sveitarfélaga gáfu tækifæri fyrir nýja hugmyndafræði sem nýttist bæði notendum, viðskiptahagsmunum og pólitískum hagsmunum. Niðurstöðurnar benda til þess að þar hafi ekki aðeins verið réttur maður á réttum stað á réttum tíma, heldur varpa þær fræðilegu ljósi á það hvað einkennir athafnafólk í opinberri stefnumótun og hvernig og hvers vegna það skiptir máli á óvissutímum í stjórnmálum.

Mobility Patterns and Sustainable Tourism: Planning and Managing Tourism in Iceland

Tourism in Iceland has experienced significant changes in the past decade. Visitor numbers increased from 459,000 in 2010 to 2.3 million in 2018. However, there was a 14% decrease in visitor numbers between 2018 and 2019, and in 2020, the visitor numbers collapsed because of the COVID-19 pandemic. The effect of the pandemic started to decrease in spring 2022 as visitors returned. The great increase from 2010 to 2018 prompted Icelandic authorities to focus on sustainable tourism management in their policymaking. The focus has been on distributing the flow of visitors and associated revenues more evenly across regions, while protecting the main tourist attraction: nature, as well as nature-based destinations. Knowledge of mobility patterns at different scales is crucial for the sustainable development and management of tourism. This study analyses mobility patterns in Iceland through examining visitor numbers at 18 nature-based destinations scattered around the country. The mobility patterns are then related to the sustainable tourism objectives of the Icelandic tourism authorities. The results indicate that the south and southwest region of Iceland is more visited and exhibits less seasonality than other regions of the country. Seasonality has decreased in all regions but not to the same extent as in the south and southwest, the area that includes both the main gateway, Keflavik International Airport, and the capital city of Reykjavík, which often serves as a basecamp for natural attractions. When planning for and managing sustainable tourism in Iceland, it is crucial to know the number of visitors at nature-based destinations, as these numbers are key for analyzing mobility patterns.

Þingeyrar after the Dissolution

After the Reformation, many monasteries in Scandinavia were provided new purposes or maintained parts of their former functions, serving as everything from hospitals to city halls. In Iceland, however, this did not happen; the monasteries were abandoned, and their functions in society, both ecclesiastical and secular, were, in time, forgotten. This was despite attempts to open schools in some of the former monasteries. While the reasons for the failure of these institutions to transition from being run by ecclesiastical to secular authorities in Iceland remain unknown, the common perception is that these sites remained centers of some influence, power and wealth. This paper will use the monastery site of Þingeyrar, Northern Iceland, as a case study, discussing ceramic data from ongoing excavations there as well as historical data on landholdings to examine the continuity of influence and wealth at monastery sites in Iceland following their dissolution.

Willingness to pay to escape COVID-19 related social restrictions

ABSTRACT We estimate the willingness to pay to escape different bundles of social restrictions imposed by the authorities in Iceland during COVID-19 using contingent valuation methods. Average willingness to pay to escape a bundle of social restrictions for 1 month is USD 139, amounting to approximately 2% of monthly GDP per capita in Iceland. We also find a net preference for substantial entry restrictions at the country’s border.

Capital controls as a bargaining device: The case of Iceland

AbstractIceland imposed strict capital controls when its banks failed in October 2008. Legacy problems and a large stock of carry‐trade funds locked in by the controls hindered lifting them, but they also helped in resolving the banks. We formulate and calibrate a bargaining model describing the strategic interaction between Iceland and international investors. Outcomes indicate a judicious bargaining approach by Icelandic authorities which was ultimately successful and led to resolution by settlement. The results are robust to reasonable variations in parameter values and are consistent with outcomes in investment arbitration trials and anecdotal evidence from Icelandic case law.

Monoclonal Gammopathy of Undetermined Significance and COVID-19: Results from the Population-Based Iceland Screens Treats or Prevents Multiple Myeloma Study (iStopMM)

IntroductionMultiple myeloma (MM) patients have an increased risk of severe coronavirus disease 2019 (COVID-19) when infected with severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). Monoclonal gammopathy of undetermined significance (MGUS) precedes MM and related disorders and affects 4.2% of the general population over the age of 50 years. MM and MGUS are associated with immune dysfunction that is believed to contribute to the development of severe COVID-19. Currently, no systematic data on MGUS and COVID-19 have been published. We conducted a large population-based cohort study to evaluate whether MGUS was associated with SARS-CoV-2 infection and the development of severe COVID-19.MethodsData on all SARS-CoV-2 test results and COVID-19 severity was acquired from the COVID-19 Outpatient Clinic at Landspitali - The National University Hospital of Iceland. The first case of COVID-19 in Iceland was diagnosed on February 28 th, 2020. Since then, the Icelandic authorities have followed an aggressive strategy of SARS-CoV-2 testing and contact tracing. All SARS-CoV-2-positive individuals were immediately contacted and those with active infection were enrolled into telehealth monitoring consisting of repeated standardized interviews conducted by a nurse or physician. If clinical deterioration was detected, patients were assessed in person at the COVID-19 Outpatient Clinic and admitted if needed.Study participants were included from the Iceland Screens Treats or Prevents Multiple Myeloma study (iStopMM). The study is an ongoing population-based screening study for MGUS and randomized trial of follow-up strategies. Out of the 148,708 Icelanders who were born 1976 and earlier and were alive on September 9 th 2016, 80,759 (54%) provided informed consent for study participation and 75,422 (94%) of those provided a blood sample for MGUS screening by serum protein electrophoresis (SPEP) and free light chain (FLC) assay. MGUS was determined by current criteria using SPEP and FLC assay data. Individuals who had died, been diagnosed with MM and related disorders, or were undergoing treatment for smoldering MM prior to February 28 th were excluded.First, the association of MGUS and testing positive for SARS-CoV-2 was evaluated. We used a test negative design and included participants who had been tested at least once for SARS-CoV-2 between February 28 th and December 31 st, 2020. The association of MGUS and a positive test for SARS-CoV-2 was assessed using logistic regression, adjusted for sex and age.Next, the association of MGUS and severe COVID-19 was evaluated. Those who tested positive for SARS-CoV-2 were included unless they were hospitalized or living in a nursing home at diagnosis. Participants were followed until discharge from telehealth monitoring or until considered having severe COVID-19. Severe COVID-19 was defined as the composite outcome of the need for outpatient visit or hospital admission and death and as the composite outcome of hospital admission and death. Logistic regression was then performed adjusting for sex and age.ResultsOf the 75,422 individuals screened for MGUS, 32,047 (42%) were tested for SARS-CoV-2 during the study period of whom 1,754 had MGUS (5.5%). Those with MGUS were older (mean age 66.3 vs 59.1 p<0.001) and more likely to be male (50% vs 41% p<0.001). In total, 1,100 (3.4%) of the participants tested positive for SARS-CoV-2 of whom 65 had MGUS. After adjusting for sex and age, MGUS was not found to be associated with testing positive for SARS-CoV-2 (odds ratio (OR): 1.05; 95% confidence interval (CI): 0.81-1.36; p=0.72; Table; Figure A).Of those who tested positive for SARS-CoV-2, a total of 230 had the composite outcome of requiring an outpatient visit or hospital admission, and death, and 117 had the composite outcome of hospital admission and death. After adjusting for age and sex, MGUS was not found to be associated with either endpoint (OR: 0.99; 95%CI: 0.52-1.91; p=0.99 and OR: 1.13; 95%CI: 0.52-2.46; p=0.76; Table; Figure B)Conclusions:In this large population-based study that included 75,422 individuals screened for MGUS, we did not find MGUS to be associated with SARS-CoV-2 susceptibility or COVID-19 severity. This is contrary to MM which is preceded by MGUS. These findings suggest that immunosuppression in MGUS differs significantly from that of MM and are important since they can inform management and recommendations for individuals with MGUS. [Display omitted] DisclosuresKampanis: The Binding Site: Current Employment. Hultcrantz: Intellisphere LLC: Consultancy; Daiichi Sankyo: Research Funding; Curio Science LLC: Consultancy; Amgen: Research Funding; GlaxoSmithKline: Membership on an entity's Board of Directors or advisory committees, Research Funding. Durie: Amgen, Celgene/Bristol-Myers Squibb, Janssen, and Takeda: Consultancy; Amgen: Other: fees from non-CME/CE services . Harding: The Binding Site: Current Employment, Membership on an entity's Board of Directors or advisory committees, Patents & Royalties. Landgren: Amgen: Honoraria; Janssen: Honoraria; Celgene: Research Funding; Janssen: Other: IDMC; Janssen: Research Funding; Takeda: Other: IDMC; Amgen: Research Funding; GSK: Honoraria. Kristinsson: Amgen: Research Funding; Celgene: Research Funding.

Nýjar hæfniskröfur til stjórnenda ríkisstofnana

Þessi rannsókn bætir við þekkingu á leiðtogum opinberra skipulagsheilda með því að skoða áhrif nýrrar stjórnunarstefnu. Ný stjórnunarstefna ríkisins var sett fram sumarið 2019. Í henni eru kynntir þeir hæfnisþættir sem liggja til grundvallar forystu hjá hinu opinbera á Íslandi. Í þessari rannsókn er fjallað um stjórnunarstefnuna, forsendur hennar og innihald til að svara þeirri spurningu hvort hún endurspegli starf stjórnenda hjá ríkinu. Einnig er skoðað hvort nýliðar í starfi stjórnenda fái þá þjálfun sem þeir telja sig þurfa til að geta sinnt starfi sínu miðað við hæfnisþættina er tilgreindir eru í stjórnunarstefnunni. Notast var við eigindlega rannsóknaraðferð og tekin djúp viðtöl við tíu nýráðna æðstu stjórnendur hjá ríkisstofnunum. Niðurstöður gefa til kynna að stjórnendum finnst stjórnendastefnan endurspegla starf þeirra. Hins vegar er nýliðaþjálfun ábótavant og er því munur á stefnunni og hvernig henni er fylgt eftir, en vegna kórónuveirunnar sem barst til Íslands í febrúar 2020 hefur starfsumhverfi stjórnenda breyst. Praktískt gildi rannsóknarinnar felst í því að varpa ljósi á raunveruleg viðfangsefni leiðtoga opinberra stofnanna.

He Collapse of the Icelandic Banking System and the (Dis)Honest and/or (In)Competent Response of the International Community

The 2008 global economic and financial crisis hit hard in Iceland. During the crisis its three largest banks all collapsed in just a few days with severe consequences for the economy and the people. Prior to the crisis, Iceland, a high income OECD country, had experienced strong growth and unprecedented expansion in overseas investments and activities, especially in the financial sector. This article focuses on the actions of the international community when the Icelandic authorities, during a period of great uncertainty, sought assistance to protect the Icelandic economy before the banking system fell. The methodology used in this article is the case study method. Compared to other research methods, a case study enables the researcher to examine the issues involved in greater depth. Arguably, the governments of the Netherlands and the UK tried to fake reality by suggesting that the Icelandic government, i.e. Icelandic taxpayers, should be made responsible for paying the debts of private banks. The EFTA Court ruling confirms that Iceland did not have this responsibility. In retrospect one can argue that the EU showed dishonesty by supporting the Netherlands and the UK in demanding a sovereign guarantee for failed private banks. The Icelandic banking expansion exposed weaknesses in EU integration and may also confirm a certain incompetence within the EU in designing an EU-wide banking system.

Services, Systems and Policies Shaping the Built Environment for People with Mobility Impairments

Background: For people with mobility impairments, access to the built environment is essential to their community mobility. Services, systems and policies shape accessibility and affect the opportunities people have to participate in society. Aim: To gain an understanding of the accessibility policy of the built environment in Iceland through an exploration of policy documents. Method: Public policy documents regarding accessibility from official websites of local and national authorities in Iceland were collected and reviewed. Findings: This review summarizes policies and identifies critical concerns that need to be addressed to improve access to the built environment in Iceland: (1) inconclusive or incomplete information, (2) limited clarity in legislation and guidelines, (3) limited users’ involvement in policymaking, (4) insufficient monitoring of services and (5) limited fit with usability values. All those aspects are critical to ensure and protect disabled people’s rights to move around and participate in society.

Nordic Cooperation in the Nuclear Safety Sector: High, Low, or Differentiated Integration?

Nordic cooperation has been depicted as eroding due to the increased importance of EU-related cooperation and integration. However, scholars propose that longstanding Nordic networks, grounded in professions and located in the state administration, may prove to be more robust toward external changes. This article discusses this proposal by looking at Nordic cooperation between the national radiation protection and nuclear safety authorities in Iceland, Denmark, Norway, Sweden, and Finland. The article maps behavioural perceptions of agency staff based on a dataset of 37 interviews to illustrate if the cooperation between the Nordic authorities is characterized by high integration, low integration, or differentiated integration within the nuclear safety sector. The study finds that the cooperation is differentiated between the highly integrated areas of radiation protection and emergency preparedness, and the less integrated areas of nuclear security and safeguards. To account for variation, the data indicates the importance of path dependency and portfolio.

Icelandic Healthcare System

Today the whole world continues to look at the surrounding reality through the prism of the coronavirus. A few months ago, in our relatively prosperous life without quarantine, the world-famous Bloomberg agency compiled another rating of countries according to the health index, on top of which were Spain and Italy. When compiling this rating, the average life expectancy of the population, the level of economic development, geographical location, prevalence of bad habits, the availability of clean drinking water, etc. were taken into account. The combination of these indicators provides data for the formation of a health index, which in Spain amounted to 92.8, and in Italy - 91.6. It is believed that the main factor contributing to the high health index in these countries is the favorable climate and the ability to keep to the Mediterranean diet, which is based on olive oil, seafood and a large amount of fruits and vegetables. However, as the tragic reality shows, countries with the best organization of the healthcare system in the world were not able to withstand the epidemic. What is the situation in the country that is the third of the top three in the ranking compiled by Bloomberg - Iceland? There is neither a favourable climate, nor olive oil, nor fresh shrimps, and the average temperature in the summer months there is +10°C. Nevertheless, in terms of life expectancy, this country left behind all the Scandinavian countries and came close to Singapore and Japan. And if we talk about the prevalence of coronavirus, then as of early April, as a result of testing of 4.7% of the population 1364 cases were found in the country, and the number of deaths was only 4. A mass examination of citizens, notably free of charge for everyone, immediate tracking of the routes of infection and isolation of the ill allowed the Icelandic authorities to take control of the situation from the very beginning of the epidemic, even without the introduction of strict restrictive measures [1].

Lúther á eylandinu. Viðtökur siðbótar á Íslandi frá sextándu til átjándu aldar

In this article the focus in on the influence of Luther’s works in Iceland from the time of the Reformation to the 18th century. It is maintained that Luther had less impact within Iceland at this particular period of time, than was the case elsewhere within the Danish kingdom, the reason being the isolation of the Icelandic nation, and the small number of educated scholars in the society. An Icelandic Lutheran self-identity was not established, mainly because the country did not have any neighboring states with a different Christian creed. Furthermore, Icelandic authorities did not publish any of Luther’s writings written prior to the Peasant’s revolt (1524–1525), where Luther confronted the established culture, and encouraged people to be independent in their thinking. A list of Luther’s works published in Icelandic, reveals that they are very few compared to numerous other religious publications. The Small Catechism is an exception, because how often it was published. In his Catechism, Luther validated the society’s class structure, and reiterated that each individual should remain obedient to his or her authorities.

Comparison of volcanic threat challenges in Iceland and Japan

The authorities in Iceland and Japan face various challenges in their efforts to reduce risks of volcano disasters. While Japanese society is much older and has therefore longer experience of facing those challenges the current methods and strategies of both in planning, monitoring, preparedness, relief, and recovery operations are similar. Both nations use modern scientific technologies for risk assessment and disaster management but several geological-, situational-, infrastructural- and cultural differences between the countries and differences in the practice of cooperation with scientists in disaster prevention make different tactics necessary. While both countries lie on the boundary of large tectonic plates, in Iceland the plates are diverging with heavy rifting and volcanic outbreaks in unexpected places while Japan lies along a subduction zone with tectonic events of large magnitude. Iceland has dangerous glacial floods of volcanic origin while the greatest flood hazard in Japan comes from the sea in form of tsunamis. Japan is more densely populated than Iceland, but both are developed countries where large sums of public funds are diverted into disaster prevention and recovery. There are similarities in such fields as monitoring of volcanic eruption and in the problem structure of tourist safety and other fields where cooperation between Japan and Iceland can produce results. Icelandic and Japanese scientists have achieved good results in the field of assessing the danger of volcanic ash plumes for the civil aviation and Japan is now presenting improved methods in ash cloud forecasting in the international community. It is concluded that further cooperation has very good possibilities to bring about further results. In this work the civil protection authorities have to identify and understand the influence of culture on disaster prevention and preparedness. Both societies’ experiences of long periods of isolation have, among other things, resulted in rather homogenous and self-reliant cultures that have influenced the way in which they have managed disasters. Dominant cultural values as well as competing values need to be considered in order to create consensus on how to reduce disaster risk and strengthen societal resilience.

Sýn Íslendinga á utanríkis- og öryggismál

Afstaða Íslendinga til öryggismála hefur lítið verið rannsökuð frá því í lok kalda stríðsins. Í þessari grein eru kynntar niðurstöður könnunar um afstöðu til og hugmyndir um utanríkis- og öryggismál, en Félagsvísindastofnun HÍ vann könnunina í nóvember og desember 2016. Niðurstöður könnunarinnar eru settar í samhengi við þróun í öryggisfræðum, þá sérstaklega öryggisgeira (e. security sectors) verufræðilegt öryggi (e. ontological security) og öryggisvæðingu (e. securitization). Helstu niðurstöður eru að almenningur á Íslandi telur öryggi sínu helst stafa ógn af efnahagslegum og fjárhagslegum óstöðugleika og náttúruhamförum, en telur litlar líkur á því að hernaðarátök eða hryðjuverkaárásir snerti landið beint. Þessar niðurstöður eru í takmörkuðu samræmi við helstu áherslur stjórnvalda í öryggismálum og því mikilvægt að stjórnvöld átti sig á því hvernig hægt er að tryggja það að almenningur sé meðvitaður um þær forsendur sem áhættumat og öryggisstefna grundvallast á.

The Inclusion of the Lived Experience of Disability in Policymaking

This paper examines the process under way in Iceland to align national law with the UN Convention on the Rights of Persons with Disabilities, focusing on the Convention’s call for the active involvement of disabled people and their representative organizations in policy and decision making on matters that affect them. The paper draws on comments submitted by Icelandic DPOs on draft legislation intended to replace the existing law on services for disabled people, focusing on comments relating to their ability to participate in and affect the policymaking process. Furthermore, it draws on interviews with leaders of representative organizations of disabled people that solicited their views on the issue. The findings indicate that there is a reluctance on behalf of Icelandic authorities to make changes to the established process, which limits the active participation of disabled people and their representative organizations. The draft legislation has neither been revised to include provisions for expanding the participation of DPOs in policy and decision making, nor to ensure that disabled people themselves participate in the process.

The Collapse of the Icelandic Banking System: Did the International Community Pretend That Facts From Reality Were Other Than They Were?

This article focuses on the actions of the international community during the 2008 global economic and financial crisis when the Icelandic authorities sought international assistance to protect the Icelandic economy and its financial sector. The object is to answer the question if the international community took appropriate actions when the Icelandic banks expanded overseas as well as after their collapse? The article argues that the UK and the Netherlands showed dishonesty when demanding a sovereign guarantee for liabilities of failed private banks.

Iceland's economic eruption and meltdown

The Icelandic financial collapse, which occurred in the fall of 2008, is without precedent. Never before in modern history has an entire financial system of a developed country collapsed so dramatically. This paper describes the country's path towards financial liberalisation and the economic background that lead to an initially flourishing banking sector. In doing so, the paper elaborates on the economic oversights that were made during the financial build-up of the country and how such mistakes contributed to the crash. The focus is thus on identifying the main factors that contributed to the financial collapse and on drawing conclusions about how these missteps could have been avoided. Also summarised are the mistakes that followed in the attempted rescue phase after the disaster had struck. The paper discusses these issues from a general perspective to provide an overview of the pitfalls that any fast growing market may be exposed to. It concludes that the economic collapse was primarily home-brewed and a consequence of an unbound, risk-seeking banking sector and ineffective (or non-existent) actions of the Icelandic authorities.

Lessons from a collapse of a financial system

The paper draws lessons from the collapse of Iceland’s banking system in October 2008. The rapid expansion of the banking system following its privatization in the early 2000s is explained, as well as the inherent fragility due to the size of the banking system relative to the domestic economy and the central bank’s reserves, market manipulation enabling bank capital to expand rapidly and the weak and understaffed public institutions. Most of Iceland’s banking system was traditionally in state hands but was privatized and sold to politically favoured entities at the turn of the century, with laws and regulations subsequently changed to facilitate the expansion of the banking system. Political connections and the tacit support of the authorities enabled senior bank managers and key shareholders to extract significant private benefits while shifting risk to domestic and foreign taxpayers and foreign creditors. These problems were exacerbated by symptoms of what the paper terms the small country syndrome. The size of the banking sector made the central bank incapable of serving as the lender of last resort. The domestic supervisor, the central bank and the ministries in charge of economic affairs were understaffed and lacking in experience in how to manage a large financial sector. The rapid growth was also ultimately unsustainable due to high levels of leverage and a weak capital base due to both the rapid expansion of balance sheets and lending to finance investment in own shares. The episode demonstrates the importance of closely monitoring rapidly growing financial institutions and even possibly slowing growth when institutions are systemically important. One lesson to be drawn from the crisis relates to the role of politics in a financial crisis. The Icelandic authorities as a matter of policy encouraged the creation of an international banking centre. This involved the privatization and deregulation of the banking system, rules and regulations being relaxed and the neglect of financial supervision. Another lesson is that floating exchange rates can be hazardous in the presence of large capital flows. The central bank raised interest rates during the boom years in order to meet an inflation target. This created an interest rate differential with other countries that encourages a large volume of carry trades and incentivized domestic agents to borrow in foreign currency. Both conspired to create an asset price bubble, excessive currency appreciation and – counter-intuitively – high inflation. The result was that monetary policy as conducted was ineffective at curbing domestic demand. The eventual large depreciation of the currency made a large section of the economy insolvent. Finally, there are lessons about the European passport system in financial services and the common market. The Icelandic banks had the right to set up branches in the European Union by means of the passport on the explicit assumption that home regulators were exercising adequate controls. The collapse of the banks left the United Kingdom and the Netherlands with significant costs, demonstrating the inherent weakness in the passport when one member country can undercut the supervisory standards of other member countries. For the passport system to work, the home supervisor must be trustworthy. — Sigridur Benediktsdottir, Jon Danielsson and Gylfi Zoega