Using provisions of the Anti-terrorism, Crime and Security Act, Britain froze the U.K. assets of failed Icelandic bank Landsbanki Islands hf, and is threatening to sue Iceland on behalf of 300,000 British bank customers who have been blocked from accessing their accounts in Icesave, the bank’s online savings unit.
The British government justified use of the anti-terrorism statutes by claiming Landsbanki’s collapse might harm the U.K. economy. The British Treasury will guarantee customer deposits at Icesave, even those above the customary 50,000-pound ($87,800) deposit protection limit.
While official pronouncements emphasized support for small individual U.K. depositors, at least 45 local governments in Britain and Wales have invested public funds in Icelandic accounts, a situation reminiscent on Orange County, California’s investment in derivatives. Local UK authorities are asking the Chancellor to guarantee local government deposits in the offshore banks, and a deferment of tax payments to the central government for local governments that need to borrow because they cannot access funds in Icelandic banks.
Icelandic banks and investment companies were deregulated in the 1990s. Flush with foreign deposits, they acquired overseas assets, including British real estate and food, clothing, jewellery and toy stores. Iceland and its foreign investors were drunk on finance, but the crushing hangover is just starting. The worldwide credit collapse has hit Iceland heavily, and the government has seized the country’s three largest banks.
Twentieth-century relations between Britain and Iceland included three “Cod Wars,” conflicts over fishing limits. Trawlers were rammed, shots were fired, and NATO eventually mediated the disputes. Medieval Icelandic Viking raids on England will undoubtedly be mentioned in the popular press.
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