More than 200,000 British investors in the internet bank Icesave were last night shut out from a guarantee to protect 100 per cent of their savings.
In a short statement, the Icelandic government said it would fully guarantee deposits in domestic banks.
But heads of Landsbanki, which runs Icesave, admitted that its UK-based savers would not get the same protection for their £4.5billion investments should it go bust.
Emphasis added by me.
Get this:
Worried British customers of Icesave were unable to access their accounts after its website crashed.
Some were informed they faced a wait of 'several hours' before they could access their money. Those ringing its phonelines were told that the bank was receiving 'unprecedented call volumes'.
The internet bank insists it has ample reserves to pay back UK customers.
However, it admitted savers had been reducing their balances to the compensation level.
Emphasis added by me.
Hey, the Dollar Uber Alles freaks always bray about "rational markets" -- there it is: people withdrawing their savings down to insurance- coverage levels! Did you expect people to do differently?
The background of all this is revealed:
Iceland's current problems have their roots more than ten years ago when a conservative government privatised and deregulated the banking industry at the same time when huge amounts of foreign money began to flood into Iceland.
No one is quite certain where it all came from - most of it was via anonymous tax havens such as the Cayman Islands - but in part it was driven by investors hungry for high interest rates.
Banks took the money and went on a spending spree. Either directly, or by loaning the cash to Icelandic entrepreneurs, they rushed around Europe buying up companies.
Today, the country has foreign debts of £78billion, which is extraordinary given that its entire annual gross domestic product is only £8billion.
Emphasis added by me.
A conservative government! What a shock!
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