The Fault Lines in Cross-Border Banking: Lessons from the Icelandic Case
This paper discusses the fault lines in cross-border banking, both at the global level and at the European Union/European Economic Area (EU/EEA) level, using the case of the three Icelandic cross-border banks as an example. Cross-currency liquidity risk built up prior to the crisis, especially matur...
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| Format: | Elektronisch Artikel |
| Sprache: | English |
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Paris
OECD Publishing
2012
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| Online-Zugang: | Volltext |
| Zusammenfassung: | This paper discusses the fault lines in cross-border banking, both at the global level and at the European Union/European Economic Area (EU/EEA) level, using the case of the three Icelandic cross-border banks as an example. Cross-currency liquidity risk built up prior to the crisis, especially maturity mismatches in foreign currency. This risk tended to be grossly underestimated at the time. There was a run on banks' FX liabilities after the collapse of Lehman Brothers in September 2008. The Icelandic banks were highly vulnerable to such a run and lacked a credible lender of last resort (LOLR) in terms of foreign currency. The crisis also exposed serious flaws in the EU and EEA framework for cross-border banking, including deposit insurance. One of the main lessons of the Icelandic experience is that sizeable cross-border banking operations in small countries with their own currency come with very significant risks. The Icelandic experience suggests that further reforms are needed for cross-border banking activities in the Single Market, where the key issue is to match the European passport for banks with pan- European supervision, deposit insurance and LOLR. Domestic banks could remain in the domestic system. |
| Beschreibung: | 1 Online-Ressource (11 p.) 21 x 28cm. |
| DOI: | 10.1787/fmt-2011-5k9cswn0lljj |
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| spelling | Guðmundsson, Már VerfasserIn aut The Fault Lines in Cross-Border Banking Lessons from the Icelandic Case Már, Guðmundsson Paris OECD Publishing 2012 1 Online-Ressource (11 p.) 21 x 28cm. Text txt rdacontent Computermedien c rdamedia Online-Ressource cr rdacarrier This paper discusses the fault lines in cross-border banking, both at the global level and at the European Union/European Economic Area (EU/EEA) level, using the case of the three Icelandic cross-border banks as an example. Cross-currency liquidity risk built up prior to the crisis, especially maturity mismatches in foreign currency. This risk tended to be grossly underestimated at the time. There was a run on banks' FX liabilities after the collapse of Lehman Brothers in September 2008. The Icelandic banks were highly vulnerable to such a run and lacked a credible lender of last resort (LOLR) in terms of foreign currency. The crisis also exposed serious flaws in the EU and EEA framework for cross-border banking, including deposit insurance. One of the main lessons of the Icelandic experience is that sizeable cross-border banking operations in small countries with their own currency come with very significant risks. The Icelandic experience suggests that further reforms are needed for cross-border banking activities in the Single Market, where the key issue is to match the European passport for banks with pan- European supervision, deposit insurance and LOLR. Domestic banks could remain in the domestic system. Finance and Investment Iceland Enthalten in OECD Journal: Financial Market Trends Vol. 2011, no. 2, p. 85-95 volume:2011 year:2011 number:2 pages:85-95 FWS01 ZDB-13-SOC FWS_PDA_SOC https://doi.org/10.1787/fmt-2011-5k9cswn0lljj Volltext |
| spellingShingle | Guðmundsson, Már The Fault Lines in Cross-Border Banking Lessons from the Icelandic Case Finance and Investment Iceland |
| title | The Fault Lines in Cross-Border Banking Lessons from the Icelandic Case |
| title_auth | The Fault Lines in Cross-Border Banking Lessons from the Icelandic Case |
| title_exact_search | The Fault Lines in Cross-Border Banking Lessons from the Icelandic Case |
| title_full | The Fault Lines in Cross-Border Banking Lessons from the Icelandic Case Már, Guðmundsson |
| title_fullStr | The Fault Lines in Cross-Border Banking Lessons from the Icelandic Case Már, Guðmundsson |
| title_full_unstemmed | The Fault Lines in Cross-Border Banking Lessons from the Icelandic Case Már, Guðmundsson |
| title_short | The Fault Lines in Cross-Border Banking |
| title_sort | fault lines in cross border banking lessons from the icelandic case |
| title_sub | Lessons from the Icelandic Case |
| topic | Finance and Investment Iceland |
| topic_facet | Finance and Investment Iceland |
| url | https://doi.org/10.1787/fmt-2011-5k9cswn0lljj |
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