Amidst subsequently cleared of negligence” (Bergmann, 2014). Iceland was

Amidst the turmoil and protests from its
citizens; the government responded
with an unorthodox approach. They allowed the country’s three biggest banks to
collapse. It became one of the largest bankruptcies in history. The government
began hunting for errant bankers. “Many senior executives have been jailed and
the country’s ex-prime minister Geir Haarde was brought to court, becoming the first world leader to
face criminal prosecution arising from the turmoil. Although he was
subsequently cleared of negligence” (Bergmann, 2014). Iceland was seen as
on the road to recovery. The government took measures to resolve the situation.
The country also worked with their counterparts to change the predicament they
were in. They implemented “strict
capital controls, austerity measures and a series of reforms; Iceland thus set
out to reinvent itself” (Matsangou, 2015). Iceland was given a $2.1 billion from the International
Monetary Fund (IMF). With this the country was able to take into task to save
its banks. It was followed with the passing of the emergency law. The government
allowed the Icelandic Financial Regulatory (FSA) to operate the three major banks. The FSA had
the ability to suspend payments to safeguard value and protect depositors. New
banks were established and the FSA gained access to domestic deposit
obligations and assets from the same failing banks. “These new banks will assume
domestic deposit liabilities and the Icelandic government has guaranteed all
domestic deposits. The new state-owned banks will overtake sufficient assets
from the old banks to cover deposit liabilities and equity requirements” (ICOC, 2017). The country’s growth was impressive after these
measures took place and the economy recovered. The financial sector of the
country which was hit hard began to recover and within a short time was able to
begin settlements with the IMF. It made substantial improvement
efforts by embracing more sustainable initiatives
and introducing a more effective governance. “There has been success in the improvement of
supervisory and macro-financial stress tests, although more still needs to be
done in terms of monitoring and the establishment of financial safety nets” (Matsangou, 2015). Changes were made in order to safeguard customers’
interests, shareholders and country’s economy as a whole. Earlier outlook may
seemed weak but moving forward, the government made adjustments and modifications
which are applied to better the way the banks operate. Iceland’s initial stage
of recovery was to make its economy competitive. “Rather than drastically cutting pay, which naturally
reduces both spending and the ability of citizens to repay their loans, Iceland
devalued its currency by around 60 percent, thereby keeping wages at around the
same level but making the krona worth less” (Matsangou,
2015).
At the beginning, the critics had doubts and many were skeptical that the
country will be able to pull through the crisis. On
the contrary to these critics, the
resolution made by the government truly seemed to be working. The country’s
unemployment declined and interest rates were deflated. It seemed that all the
country’s pre-crisis output levels have been surpassed.