The European financial system and banking supervision needs to be radically overhauled to prevent another international debacle such as the bankruptcy of Iceland’s Landsbanki, according to a report commissioned by the finance ministry.

The bankruptcy of Landsbanki and its Icesave internet subsidy led to 128,000 Dutch savers losing some €2bn in savings. Much of the compensation bill was picked up by the taxpayer.
The two researchers who drew up the report, Adriënne de Moor-van Vugt and Edgar du Perron, say that the Dutch central bank had very limited options to intervene because the supervision of Landsbanki and Icesave was up to the Icelandic financial services authority FME.

Foreign bank
In addition, the central bank could not issue a warning because Icesave was a foreign bank. A warning would also have led to a run on the bank, the researchers said.
Nevertheless the central bank could have behaved more robustly when Iceland refused to intervene in the bank, Nos tv quotes the researchers as saying.
According to the NRC, central bank officials twice asked Icesave to stop recruiting Dutch savers and once asked it to cut interest rates but Icesave ignored the requests.
For the central bank’s statement on the report, click here