Icesave dispute

Instead, UK and Netherlands then counter proposed a new version of the loan agreement, referred to as Icesave bill 2, where no time limit was included for the Icelandic state's repayment guarantee.

After analysing the election result, stakeholders decided not to attempt negotiation of a further improved Icesave bill 4, but instead to refer the case to the EFTA Court as a legal dispute.

[33][34] A press release from the FME stated that all of Landsbanki's Icelandic branches, call centres, ATMs and internet operations will be open for business as usual, and that all "domestic deposits" were fully guaranteed.

[42] On 2 September 2008, the British Chancellor of the Exchequer, Alistair Darling, had met with Icelandic Minister of Trade, Björgvin G. Sigurðsson, to discuss how the recently increased financial problems for Icelandic-owned banks operating in the UK should be handled.

On the Kastljós programme on RÚV on 13 November, he stated that Landsbanki's remaining assets according to his knowledge should be enough to cover the claims of British and Dutch Icesave depositors.

"[76] The Icelandic government has stated that the directive was never intended to cover the case of a systemic failure, and does not impose a sovereign guarantee on deposit insurance schemes.

In a speech on 3 March 2009, the Dutch Finance Minister Wouter Bos said: "First and foremost, European countries need to take a close look at how the deposit guarantee scheme is organised.

[78] The ECJ then went on to uphold the immunity of the German authorities from civil liability for alleged failings in banking supervision (as per Recital 24) given that the depositors had been compensated up to the minimum set by the Directive.

€60,000) respectively; Landsbanki was a member of the Dutch and British compensation schemes for the purposes of guaranteeing this difference in cover, an arrangement known in Britain as the "passport system", and commonly used by banks throughout the EEA (see MIFID).

A resolution of the Joint Parliamentary Committee of the EEA adopted unanimously on 28 October 2009, notes the "lack of clarity" of EU Directive 94/19/EC over the legal obligations of governments if national guarantee funds do not suffice to cover deposit guarantees; moreover, the resolution expresses regret that "significant pressure seems to have been employed" by the IMF on Iceland to reach an agreement with the United Kingdom and the Netherlands.

[84] Even the Audit Commission, the independent body responsible for overseeing local government finances, admitted having £10 million deposited with Landsbanki and its subsidiary Heritable Bank.

[90] The first attempts at resolving the Icesave dispute came the very weekend after the collapse of Landsbanki, when British and Dutch officials travelled to Reykjavík to meet separately with their Icelandic counterparts, in talks which all sides described as "constructive" and "in a friendly atmosphere".

Thus the government was in a critical need to apply International Monetary Fund (IMF) and other willing countries for the supply of a sovereign bailout package, which at that point of time got the highest priority first to settle.

Icelandic foreign minister Ingibjörg Sólrún Gísladóttir commented "We are isolated when all 27 EU member states agree that we have to reach an accord on Icesave.

[101] At the parliamentary vote, the 15 opponents of the bill had argued that no clear legal obligation existed for the Icelandic state to pay/guarantee for those lost deposits that Tryggingarsjóður potentially could not afford to cover by itself.

The government however argued, that if the parliament failed to pass the bill, then Britain and the Netherlands might retaliate by blocking a planned aid package for Iceland from the International Monetary Fund (IMF).

Then the yearly repayments should be conducted in 2017–23 to the degree of what an IMF evaluation had found was within sustainable limits, but in all circumstances still also within a maximum amount for UK equal to 4% of the accumulated basis increase of the Icelandic GDP since 2008.

[104] During the parliamentary debates, an assessment note for the amended bill had been delivered by the Icelandic Central Bank, concluding that when the Landsbanki receivership had finished its liquidation of all positive financial assets from the bankrupted Old Landsbanki by the end of 2015, then it was very likely Tryggingarsjóður through this liquidation would have received an amount big enough to repay the Dutch and British state 75% (+/- 15%) of the owed €3.8bn minimum deposit guarantees; meaning the size of the repayment liabilities for the Icelandic State was likely in all circumstances to be limited, as it would only takeover the remaining part of this unpaid liability (incl.

The legal design flaw he had pointed out, was that the repayment agreement had a paragraph which had interfered and changed the usual creditor priority order, compared to how it normally worked according to the Icelandic law.

[120][121] Public statements were not available to reveal whether or not the counter proposal from UK and Netherlands, had managed to remove the unwanted effect of having side-ordered all the creditor claims towards the Landsbanki receivership.

[127][128] The referendum was held under article 26 of the Constitution of Iceland after President Ólafur Ragnar Grímsson refused to counter-sign the corresponding Act of Parliament (known as Icesave bill 2) into law on 5 January 2010.

Ahead of the election, a calculation program had been published to display how the following five deciding parameters would influence the repayment conditions for the Icelandic state in the Icesave dispute (which showed how big an impact the newly introduced side-ordering of priority claims caused on the subsequent repayment liabilities for the Icelandic State):[130] When the votes had been counted, the result of the referendum was a resoundingly defeat for the proposed Icesave bill 2, with 93% voting against and less than 2% in favor.

[133] The third version of the Icesave bill entailed new terms and conditions for repayment of the full and remaining Icesave debt to UK and Netherlands, throughout a period stretching from one to 30 years starting from 2016 (with the length depending on how much time Iceland would need to repay its remaining obligations), to the sound of a fixed constant interest rate at 3.2% for 2009–15, which then ultimately would be substituted by a variable interest rate for the years beyond.

Unless the letter from the government contains arguments that alter our preliminary conclusions in the case, the next formal step would be to send Iceland a final warning, a Reasoned Opinion.

The combined deposit repayment claims from retail Icesave customers in Netherlands and Great Britain (including both the minimum depositor guarantees, and the deposit values in excess of the Icelandic guarantee), were at first hand covered respectively by the UK Financial Services Compensation Scheme (FSCS) and by De Nederlandsche Bank (DNB), due to the inability/unwillingness for other Icelandic stakeholders to step in and ensure/guarantee immediate coverage for these claims.

On 28 October 2011, the Supreme Court of Iceland ruled, that the UK FSCS and the Dutch DNB combined deposit repayments of respectively ISK 852.1bn (£4.459bn) and ISK 282.3bn (€1.668bn) should be repaid by the Landsbanki receivership as "priority claims" pursuant to Article 112 of "Act No.21/1991 on Bankruptcy", and noted these mentioned figures included contractual interest rates for the UK part and some extra penalty interest rates (6%) for the Dutch part for the period from 8 October 2008 until 22 April 2009.

[150] As of 12 September 2013, the Landsbanki receivership had, through liquidation of the first half of its assets, managed to repay the first 53.9% (ISK 715bn, €4.23bn) of all the priority claims,[151][152] and expected the remaining part would be fully repaid by the end of 2017.

Experts from IMF however believe, that any potentially saved money from a negotiated deal, would be eaten up by the additional costs the government will need to pay in the short term, for implementing the abolishment of capital controls.

[167][168] In that regard, it shall be noted that all of the first four repayment tranches repaid by the Landsbanki receivership were exempted from this amended law, because it only involved available cash stemming from liquidation conducted ahead of 12 March 2012.

[169] Another new repayment restriction under consideration, is that the Icelandic government on 1 October 2013 presented a proposal for their 2014 budget law, to include a new 0.145% tax on all transfers from estates of failed financial companies.