“The Bank Collapse Was Part of the Financial Crisis”

Professor Gissurarson talking to Sirja Rank. Photo: Meeli Küttim.

When Professor Hannes H. Gissurarson, RNH Academic Director, was in Estonia at the end of April, Sirja Rank from the Estonian business paper Äripäev interviewed him on the Icelandic bank collapse. The interview was published 1 May 2015. Ms Rank asked the Professor whether he, as a member of the Overseeing Board of the Central Bank of Iceland in 2001–2009, did not accept partial responsibility for the bank collapse. “The Central Bank of Iceland cannot be held responsible for the systemic error which was encountered—even discovered—in the international financial crisis,” Professor Gissurarson replied. “This was that the Icelandic banks’ field of operations was much bigger than their field of institutional support. In the end, no one supported the Icelandic banks, whereas almost all other banks in Europe were rescued. The US Fed did for example make very high dollar swap deals with the central bank of Switzerland which had just as big a banking sector as Iceland proportionally. If this had not been done, the Swiss banks would have collapsed.”

Professor Gissurarson was asked if the bank collapse had not been brought about by the neoliberalism which he had enthusiastically embraced. “On the contrary,” he replied. “The banks operated under precisely the same legal and regulatory framework as banks elsewhere in the European Economic Area. However, you can argue that the good reputation which Iceland acquired in the “neoliberal” era of 1991–2004 may have had something to do with the incredible speed with which the banks could expand. They had good credit ratings. But we have to make a distinction between the market capitalism of 1991–2004 and the crony capitalism of 2004–2008. In the latter period, a small group of oligarchs practically controlled Iceland. It owned most of the media and greatly influenced commentators, journalists and even judges. This group, led by Jon Asgeir Johannesson, did a lot of things which I am not prepared to defend.”

Professor Gissurarson was asked whether he had modified his libertarian views as a result of the bank collapse. “The main point is that the collapse was a part of the international financial crisis,” he replied, “and a major cause of that crisis was the recklessness of commercial banks, and a major cause of that recklessness was their belief that if in trouble, they would be bailed out, while if successful they could pocket the profit. This was an irrational principle. Banks should operate under the same principle of responsibility for their own actions as do other private enterprises. The common man should not bear the cost of bankers’ recklessness.”

Professor Gissurarson was asked why Iceland had been so quick to recover. “That’s because the country was never bankrupt, even if Gordon Brown claimed it was,” he replied. “The Icelanders are few in numbers, and they hold considerable assets, the fish stocks in the Icelandic waters, energy resources, an alluring country much in demand by tourists, and last, but not least, a lot of human capital. We were knocked down, and we were a bit dizzy and disoriented for a while, but now we have stood up, and we are walking on briskly.”

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