A/HRC/28/59/Add.1 to provide an ample credit supply at low interest rates. The country became one of the richest countries in the world, with the fourth-highest gross domestic product (GDP) per capita worldwide. From 2003, the public Housing Financing Fund was allowed to provide loans to cover up to 90 per cent of the market value of a house, below a certain ceiling. Commercial banks entered the mortgage loan market, frequently offering better terms than the Government and aggressively expanding their consumer lending, which made Icelandic households among the most heavily indebted in the world.16 21. By 2008, Iceland was one of the most overbanked economies in the world, with its banks holding assets to a value 10 times that of the country’s GDP.17 Early warnings of the crisis by foreign analysts in 2006 where largely ignored.18 Icelandic triple-A rated banks were already facing liquidity problems, but continued to grow, offering costumers abroad, mainly in the United Kingdom of Great Britain and Northern Ireland and the Netherlands, attractive interest rates on presumably secure deposits. The bubble continued to grow until the fall of Lehman Brothers Holdings Inc. when tightening conditions led the gross foreign debt burden of the Icelandic banks to rise from 43 per cent of GDP in 2002 to over 700 per cent of GDP in October 2008, which resulted in the collapse of all three major Icelandic banks — Glitnir, Kaupthing and Landsbanki. 22. On 6 October 2008, the Icelandic Parliament passed Emergency Act No. 125/2008, authorizing the Financial Supervisory Authority to take control of the three large banks. Crisis management emphasized the need for uninterrupted domestic banking operations and three new banks — Islandsbank, Arion Bank and Landsbankinn — were established to take over the domestic activities of the three collapsed banks. The State became a majority owner of Landsbankinn and a minority owner of the other two banks. The Government injected share capital into the three new banks and several smaller financial institutions and took over losses at a combined cost of roughly one third of GDP for 2008. While foreign investors bore the bulk of the cost of the Icelandic banking collapse, the amount invested by the State to recapitalize the Icelandic Central Bank and to cover the losses from the takeover of Icelandic financial institutions has been estimated at ISK 348 billion to 393 billion, an amount almost equivalent to the annual worth of taxes paid by Icelanders. 19 23. In November 2008, following a steep depreciation of the Icelandic krona, the Government introduced capital controls to stabilize the currency and prevent excessive capital outflows. Shortly thereafter, Iceland applied to the International Monetary Fund (IMF) for emergency financial aid and was granted a US$ 2.1 billion loan under a two-year standby programme. The adjustment programme implemented jointly with IMF was rather unorthodox in the light of previous IMF adjustment programmes; it included stabilizing the currency through the introduction of capital controls; rebuilding the banking sector; and addressing the public deficit through a combination of tax increases and expenditure cuts, while keeping the country’s social protection system largely untouched. 16 17 18 19 Eríkur Bergmann, Iceland and the International Financial Crisis (Basingstoke and New York, Palgrave Macmillian, 2014); Silla Sigurgeirsdóttir and Robert H. Wade, “From control by capital to control of capital: Iceland’s boom and bust, and the IMF’s unorthodox rescue package”, Review of International Political Economy, vol. 22, No. 1 (2015), pp. 103–133; Thorvadur Tjörvi Ólafsson and Karen Aslaug Vinisdóttir, “Household’s position in the financial crisis in Iceland”, Central Bank of Iceland, Working Paper, No. 59 (June 2012). Central Bank of Iceland, Economy of Iceland (Reykjavik, September 2014), p. 29. Iceland, Report of the Special Investigation Commission (Reykjavik, 2010). Thorolfur Matthiasson and Sigrún Davidsdóttir, “State Costs of the 2008 Icelandic Financial Collapse”, EconoMonitor (5 December 2012), available from www.economonitor.com/blog/2012/12/state-costs-of-the-2008-icelandic-financial-collapse/. 9