Banking and Financial Services/International Law: New Developments on Iceland Icesave Deposits

Over the last ten days, there have been two significant developments in Iceland with regard to Icesave deposits, the high-yield savings accounts offered by the online bank Icesave in the Netherlands and the United Kingdom. On February 16, the Icelandic Parliament, the Althingi, passed a bill that -- according to a report by Wendy Zeldin of the Library of Congress -- would "enable the Icelandic government to guarantee loans from those two countries to cover Dutch and U.K. depositor claims stemming from the collapse of Icesave's parent company, Landsbanki Islands h.f. Passage of the bill comes more than two years after the Iceland financial system's near collapse in October 2008."

Second, on February 22, Iceland's President, Olafur Grimsson, called a referendum on the bill. According to a BBC article, President Grimmson told reporters, "It is important that the nation again will get its say." In a March 2010 referendum on a previous version of the Icesave deal, 93.2 percent of Icelandic voters rejected that deal. The BBC noted that "[u]nder the terms of the latest deal Iceland will have longer to repay, and at a lower interest rate than before." Moody's warned, however, that if the bill were to be rejected, it would "likely downgrade the government's ratings to Ba1 or below, given the negative repercussions that would follow for the country's economic and financial normalisation," and might "lead to a cut-off in the remaining $1.1 billion committed by the other Nordic countries and probably also to delays in Iceland's IMF program."