Iceland’s banking system collapsed in 2008 after its three major commercial banks failed within days.
The banks—Glitnir, Landsbanki, and Kaupthing—had expanded rapidly during the years before the crisis. Their assets became many times larger than Iceland’s economy, while much of their funding depended on international wholesale markets. When global credit conditions deteriorated, refinancing became impossible.
Glitnir was placed under government control on 29 September 2008. Landsbanki was taken over on 7 October, and Kaupthing followed on 9 October. The sequence made Iceland one of the clearest examples of how a highly leveraged banking sector can overwhelm a small national economy.
Iceland’s authorities guaranteed domestic deposits but did not fully cover foreign depositors in the failed online banking operations. The crisis caused a severe recession, a sharp fall in the Icelandic krona, and political turmoil. Iceland’s experience is often confused with Ireland’s crisis, but Ireland’s banking collapse followed a different institutional and property-market path.