An International Battle Over One Of The Most Boring Things In Finance : Planet Money The years-long, multi-billion-dollar battle just ended.
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An International Battle Over One Of The Most Boring Things In Finance

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An International Battle Over One Of The Most Boring Things In Finance

An International Battle Over One Of The Most Boring Things In Finance

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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One of the stranger stories of the financial crisis may finally have come to an end. It was an international battle over bank accounts on a scenic island nation that touches the Arctic Circle. More precisely, it was a battle over who would pay when those bank accounts came up empty. Here's David Kestenbaum, with NPR's Planet Money team.

DAVID KESTENBAUM, BYLINE: The first remarkable thing about this story is where the bank accounts were located. The bank was on a small, often-frozen island in the middle of the ocean. In fact, it's named for being frozen - Iceland. As it happens, at the time all this was unfolding, our Planet Money intern, he was from Iceland. Hey, Baldur.


KESTENBAUM: I've got to say your last name right. Let me try: Hedinson?

HEDINSON: Hedinson.


HEDINSON: Very good.

KESTENBAUM: Nice to have you back. Get us started - how big were the banks?

HEDINSON: The banks were huge. Before the financial crisis, they were 10 times the size of the economy. And they were even running TV ads abroad.

KESTENBAUM: Here, let's play my favorite ad. It starts John Cleese, of "Monty Python fame." It was for a bank called Kaupthing.


JOHN CLEESE: Kaupthing is the biggest company is Iceland. It's a company where you get all the benefits of a huge, global, multimillion - I mean, how many millions live in Iceland?

UNIDENTIFIED MAN #1: Three hundred thousand.

CLEESE: Three hundred thousand million?

UNIDENTIFIED MAN #1: No, just 300,000.

CLEESE: Huh. So Kaupthing is the biggest company in this tiny, little country. Tell me, how many companies do you have in Iceland? What, half a dozen?

KESTENBAUM: Ads like this worked, in part because the savings accounts paid surprisingly high interest rates. And lots of people in England and the Netherlands opened up savings accounts with one bank in particular, Landsbanki. They were called ICESAVE accounts. During the financial crisis, the bank collapsed, and everybody tried to get their money out. But there was not enough money to go around.

HEDINSON: My government stepped in, and made sure that everybody here in Iceland got their money back. But they didn't do the same for people abroad.

KESTENBAUM: And the British and Dutch governments, they were pretty unhappy about that since a lot of their citizens had money in ICESAVE accounts. So what did they do? They stepped in and bailed out their own citizens. Here's British Finance Minister Alistair Darling, on the BBC that day in 2008.


ALISTAIR DARLING: I'm going to make it clear in the House of Commons later today, that we will stand behind the depositors, the savers in ICESAVE to make sure that they get their money back. I wouldn't normally do this because this is a branch of a foreign bank, but these are exceptional times. And, you know, it really is quite extraordinary when you get a country like Iceland, which is basically defaulting on its obligations. Now, we're going to pursue them, you know, with, you know, vigor...

KESTENBAUM: This pursuing with vigor, it went on for quite a while; the British and Dutch governments saying, you owe us money, and Iceland saying no, we don't.

HEDINSON: Eventually, in Iceland, we had a national referendum on this question. Should we pay the British and the Dutch back, or not?

KESTENBAUM: It was a big decision. Some people felt no - you know - these are private banks. Why should we pay for their mistakes; why should we pay what could be a few thousand dollars per person? Iceland, after all, is a tiny country. England is 166 times larger. Baldur, though, you did not feel that way.

HEDINSON: I was really worried what would happen if we didn't pay the money back. I mean, would people want to trade with us? Would people want to invest in Iceland? Would people trust Icelanders ever again? So I voted yes. I said we should pay the money back. I just thought it was the right thing to do.

KESTENBAUM: You were outnumbered, though, Baldur. There were more noes than yeses.

HEDINSON: Yeah. I definitely lost. But it still wasn't over. After that, it went to the international court.

KESTENBAUM: And this week - this week, finally - the court issued its ruling. There was a press conference on TV.


UNIDENTIFIED MAN #2: Thank you very much. I'll just...

HEDINSON: Basically, Iceland won. We didn't have to pay any money back.


UNIDENTIFIED MAN #2: And that - in very, very short summary - is what the court said over about 240 paragraphs.

KESTENBAUM: In England, this ruling barely made a ripple in the newspapers.

HEDINSON: Here in Iceland, people were really relieved. The TV cameras even caught our prime minister doing a little dance.

KESTENBAUM: What did the dance look like?

HEDINSON: (LAUGHTER) It was very awkward.

KESTENBAUM: OK. So the court answered this one question; Iceland does not owe any extra money. But there was this bigger fear you had, Baldur, which is that if you didn't pay up, you were worried Iceland's economy might suffer; that Iceland might be thrown out of the international community, seen as a deadbeat. Did that happen?

HEDINSON: No, it didn't. And, actually, our economy is doing OK, at the moment. It's not great, but it's doing OK.

KESTENBAUM: The world still needs Iceland.

HEDINSON: The world still needs Iceland, and Iceland definitely still needs the world.

KESTENBAUM: And how do you feel about your vote?

HEDINSON: When I look back, I think I voted the wrong way. Yeah. I voted the wrong way.

KESTENBAUM: Baldur, you know, no one ever admits they're wrong, on radio.


KESTENBAUM: All right, we've just got to do the end. I'm David Kestenbaum, in New York.

HEDINSON: And I'm Baldur Hedinson in Reykjavik, for NPR News.

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