October 28, 2015 / 6:42 PM / in 3 years

Iceland agrees steps for failed banks before lifting capital controls

COPENHAGEN, Oct 28 (Reuters) - Iceland’s central bank and finance ministry said on Wednesday they had agreed in principle to proposals from the three failed banks that precipitated a financial meltdown in 2008 on how they wind down their businesses ahead of lifting capital controls.

The North Atlantic island imposed the controls to cap currency outflows from the country, especially once creditors of failed banks started to collect their debt, and manage the Icelandic crown’s movements.

Iceland is concerned lifting controls could prompt a massive outflow of capital and destabilise again the crown currency.

Among the measures agreed to ensure that did not happen was a demand that creditors of the failed banks either pay a 39 percent “exit” tax on money they may take out in the future or that they make a “stability contribution”.

Last week, Iceland said creditors of Glitnir bank proposed handing to the government their 95 percent stake in Islandsbanki, created out of the collapsed remnants of Glitnir and with equity of $1.48 billion, nationalising the bank.

Now, the central bank and the Finance Ministry said “stability contributions” worth 490 billion crowns ($3.8 billion) have been effectively offered by the three and that it considered these proposals as satisfactory.

Aside from Glitnir, the other two failed banks are Kaupthing, now known as Arion bank, and Landsbanki, now Landsbankinn — which operated the Icesave deposit scheme that caused a diplomatic furore between Iceland and Britain and the Netherlands when the banks went bust.

The government had given the estates of the banks until the end of the year to come up with their proposals but on Wednesday it said that deadline had been extended until March — in part to allow the bureaucratic process including votes in parliament, to run its course.

Reporting by Ragnhildur Sigurdardottir in Reykjavik; Writing by Sabina Zawadzki in Copenhagen; Editing by Alison Williams

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