Financial Crisis

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Cunent Politics and Economics of Europe ISSN: 1057-2309 Volume 21, Issue 1 © 2010 Nova Science Publishers, Inc.


James K. Jackson
On November 19, 2008, Iceland and the Intemational Monetary Fund (IMF) finalized an agreement on a $6 billion economic stabilization program supported by a $2.1 billion loan from the IMF. Following the IMF decision, Denmark, Finland, Norway, and Sweden agreed to provide an additional $2.5 billion. Iceland's banking system had collapsed as a culmination of a series of decisions the banks made that left them highly exposed to disruptions in financial markets. The collapse of the banks also raises questions for U.S. leaders and others about supervising banks that operate across national borders, especially as it becomes increasingly difficult to distinguish the limits of domestic financial markets. Such supervision is important for banks that are headquartered in small economies, but operate across national borders. If such banks become so overexposed in foreign markets that a financial disruption threatens the solvency of the banks, the collapse of the banks can overwhelm domestic credit markets and outstrip the ability of the central bank to serve as the lender of last resort. This report will be updated as wananted by events.

Iceland [1] is the smallest economy within the Organization for Economic Cooperation and Development (OECD) with a gross domestic product (GDP) in 2007 of about $11.8 billion, as indicated in Table 1. Historically, Iceland's economy has been based on marine and energy resources.
This is an edited, reformatted and augmented version of CRS Report RS22988, dated November 20, 2008.


James K. Jackson

Table 1. Iceland: Main Economie Indicators and Projections (in billions of dollars and in percent)
2004 2005 2006 2007 2008 2009

Actual GDP (in…...

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