Friday, October 31, 2008

Kaupthing bank, a victim of the government's actions?

Times Online recently reported that the British Government may have to face a judicial review legal of its decision to put the UK subsidiary of Kaupthing, the failed Icelandic bank, into administration.

The allegation includes the view that the Treasury acted outside its powers under the Banking (Special Provisions) Act 2008. This act had been put in force only a few months ago to enable the nationalisation of Northern Rock. Kaupthing also thinks, that the Treasury was unjustified in treatin it like the other icelandic Banks and that this may have caused or contributed to the collapse

As one of the first acts the deposits of some 160,000 UK clients had been transferred from Kaupthing to ING Direct Bank. The fact that only a few days later ING received a EUR 10bn capital injection from the Dutch state casts a particular light on this decision.

Kaupthings's lawyers allude to a scenario whereby putting the UK branch of Kaupthing under administration and the resulting transfer of funds may be (partly) responsible fot the collapse of the Bank in Iceland

This view of the events will probably not please PM Gordon Brown, who likes to see himself in the role of leader in the world-wide efforts to deal with the financial crisis. His government is also being criticized for freezing the assets of icelandic banks on the basis of legislation that was introduced to combat terrorism.

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