Iceland's October 2008 banking collapse

Between 7 and 9 October 2008, Iceland's three largest banks — Kaupthing, Landsbanki and Glitnir — failed in rapid succession, a sequence the Bank for International Settlements has described as the largest systemic banking collapse any country has suffered relative to the size of its economy. The three institutions together accounted for more than 80% of Iceland's financial system, and their combined balance sheets had grown to roughly ten times national GDP, financed largely through short-term wholesale borrowing abroad rather than domestic deposits. When global wholesale funding markets froze in 2008, the banks could not roll over their debts, and the central bank's foreign reserves were far too small to act as lender of last resort for institutions of that size. Emergency legislation let the government split each bank into a domestic entity, which kept deposits and branches running, and a foreign estate left to creditors. Iceland then became the first Western European country since Britain in 1976 to request IMF assistance, securing a Stand-By Arrangement alongside bilateral loans that brought total support to around $4.6 billion, while comprehensive capital controls were imposed the following month to stop the currency from collapsing further.