The year 2008 saw the collapse of the three largest banks in Iceland. Relative to the size of the economy this was the largest banking failure in the world.

The purpose of this tutorial is to discuss the details of the case, how it happened, the warning signals, and other case details.

Triple Crisis in Iceland

Iceland's economy was plagued by three crisis simultaneously, namely, Banking Crisis, Currency Crisis, and Public Debt Crisis. The extent of these crises was so huge that it leads to the collapse of the three largest banks in Iceland.

Let's discuss the extent of these crises:

Banking Crisis

The three banks being discussed are Kaupthing, Landsbanki and Glitnir. These banks mainly focused on Iceland, UK, Denmark, and Norway but had branches in more than 20 countries.

In March 2008, the book assets of these three banks stood at more than 1000% of the country's GDP.

The collapse of these three banks accounted for 85% of their banking system. As the crisis widened, all three banks had to write-down a high number of assets, the asset values fell and by October 2008, the values had fallen to 300% of GDP.