UK welcomes Iceland loan agreement
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Issued 19 October 2009
Economic Secretary to the Treasury, Ian Pearson MP, welcomed an agreement
today on repayment to the UK and Netherlands of payments made following the
collapse of Landsbanki.
The agreement, signed by the Governments of the UK, the Netherlands and
Iceland, includes a sovereign guarantee by Iceland and will pass into law
following the passage of a Bill introduced today into the Icelandic Parliament,
the Althingi.
Ian Pearson MP said:
“This is an important agreement for all three countries. It is good news for
UK and Dutch taxpayers as it paves the way for the full repayment of funds lent
to Iceland to meet its obligations Icesave depositors. For Iceland, the
resolution of the Icesave issue is an important step to help restore its
standing in international capital markets.”
Notes
1. The UK Government reached agreement on 5 June 2009 with the Icelandic
authorities on a process to ensure UK taxpayers are refunded for the
compensation the UK Government paid out via the Financial Services Compensation
Scheme (FSCS) on behalf of the Icelandic Depositors’ and Investors’ Guarantee
Fund (Tryggingarsjóður Innstæðueigenda og Fjárfesta) (DIGF) to Icesave retail
depositors with the UK branch of Landsbanki, following the collapse of
Landsbanki in October 2008.
2. This will be achieved by recognising the assistance provided by the UK
Government as a £2.3 billion HM Treasury loan to theDIGF, which will be
guaranteed by the Icelandic Government.
3. Under Icelandic law, Althingi is required to authorise the guarantee. A
Bill was passed in August to this effect but with a number of conditions
introduced by the Icelandic Parliament.
4. The loan agreement has now been amended to take account of these
conditions and also to confirm that the guarantee will continue until the loan
has been repaid in full.
5. Detail of the agreement:
6. The UK Government has signed an agreement with the DIGF which makes
provision for a loan facility to the Fund to a maximum amount of £2.35 billion.
The repayment mechanism specified in the agreement sets out the terms on which
the DIGF will repay the FSCS for compensation the UK Government paid out to
eligible depositors.
7. The terms include an initial 7-year grace period during which interest
will be capitalised and the DIGF will have no principal repayment obligations
other than to pass on to the FSCS all recoveries made by the DIGF in the winding
up of Landsbanki. Interest and principal amounts will be payable quarterly
thereafter during a period of eight years. During this period the loan will be
guaranteed by Iceland.
8. Joint statement between the UK, Netherlands and Iceland, released on
Monday:
Joint Statement upon introduction of a Bill on Icesave to the Icelandic
parliament Althingi
9. Following the signing of an acceptance and amendment agreement between
Iceland and each of the UK and the Netherlands a bill was introduced to the
Icelandic parliament today. Those amendment agreements and the Bill mark the
final steps in implementing the Icesave loan arrangements between Iceland and
the UK and the Netherlands.
10. In the loan agreements, as amended, the UK and the Netherlands have
accepted i.a. the economic conditions set out in Iceland’s Act No. 96/2009
adopted by Parliament on 28 August 2009. In the new Bill Iceland reaffirms its
binding guarantee of the obligations of the Icelandic Deposit Guarantee Fund to
compensate UK and Dutch depositors with Icesave without admitting any
pre-existing legal obligation to provide that support. The Bill also mandates
Iceland's Minister of Finance to monitor Iceland's economic position and the
mechanics of the Icesave loan agreements with a view to ensuring their smooth
implementation and taking steps towards further discussions as needed.
11. All parties share a willingness to work together in the coming months and
years, including at the request of any of the parties to discuss and possibly
react to issues that may arise. The parties will co-operate in providing
assistance for the recovery of the relevant Landsbanki assets.
12. The finance ministers of Iceland, the United Kingdom and the Netherlands
acknowledge that the budget discipline inherent in Iceland agreeing the Icesave
loan arrangements will not be easy for the people of Iceland. They expressed
support for a successful IMF review consistent with decisions taken in November
last year on the basis of Iceland's letter of intent. They consider the
resolution of the Icesave issue coupled with the financial support provided by
other European countries and the IMF to be an important step that will greatly
enhance Iceland's standing in and access to the international financial markets.
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