Bringing Down the Banking System: Lessons from Iceland by G. Johnsen

By G. Johnsen

The mixed cave in of Iceland's 3 biggest banks in 2008 is the 3rd biggest financial disaster in heritage and the most important banking approach cave in suffered by means of any kingdom in glossy fiscal background, relative to GDP. How might tiny Iceland construct a banking process in lower than a decade that proportionally surpassed Switzerland's? Why did the bankers choose to develop the method so quickly? How did companies tunnel funds out of the banking method? And why did not anyone cease them? Bringing Down the Banking approach solutions those questions. Gudrun Johnsen, Senior Researcher with Iceland's particular research fee, tells the riveting tale of the increase and fall of the Icelandic banking approach, describes the Commission's findings on the dangerous results of protecting corporation cross-ownership, and explains what we can research from it all.<

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At the same time, I became curious to study the relationship between the incentives and the different economic outcomes they might yield, both for financial institutions and for other firms. That opportunity came when I was hired by R AND Corporation in California after graduating from the University of Michigan in 2003. R AND allowed me to focus my research on the pay-forperformance relationship by scrutinizing the interaction between different incentivizing tools readily available to discipline managers.

It was a brand new institution, which was focused on growth and increasing profits and staffed with young and relatively inexperienced professionals with recent college or postgraduate degrees. The Icelandic financial market was going through reorganization, including the privatization of financial institutions, and incentivizing tools such as bonuses were introduced. Times were looking up, particularly for the employees of FBA, who quickly became labeled as high-income individuals—the new privileged few.

We have been meeting nearly non-stop over the weekend regarding the current state of the financial system. I can assure you that everyone involved has put their utmost effort into ensuring that the banks and financial institutions continue operating today as normal. The outcome of this weekend’s work gave us reason to believe that the banks would be able to get funding for the short term. I therefore said last night that it was my and the Government’s assessment that there was no reason for special measures on our part.

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