The Collapse of the Icelandic Banking System Financial Essay
The global financial and economic crisis has hit Iceland with extreme force. Iceland's three main banks, which accounted for almost the entire banking system, went bankrupt. They were unable to withstand the deterioration of global financial markets following the bankruptcy of Lehman Brothers. The banks had pursued a risky expansion. The deflation resulted from the collapse of the banking system, as explained in the essay on the banking panic. The Federal Reserve could have prevented deflation by preventing the collapse of the banking system or by countering the collapse with an expansion of the monetary base, but failed to do so. The problems between Iceland and Britain began when Britain, in an attempt to protect its financial assets in Iceland, invoked anti-terrorism laws to freeze the British assets of a failing Icelandic bank. Britain froze Landsbanki's assets and seized the assets of Kaupthing Singer and Friedlander.