Iceland’s stock exchange suffered a collapse after the country’s three major banks failed during the 2008 financial crisis.
Iceland’s banking system had expanded rapidly before 2008, with the three largest banks—Glitnir, Landsbanki, and Kaupthing—building liabilities far larger than the country’s economy. When global credit markets froze, the banks could no longer refinance their foreign borrowing.
The Icelandic government took control of the banks in October 2008. Trading in most shares on the Iceland Stock Exchange was suspended, and the exchange’s main index fell dramatically when trading resumed. The crisis also caused a severe fall in the Icelandic króna and led to emergency assistance from the International Monetary Fund and other countries.
The stock-market collapse was therefore part of a broader sovereign, banking, currency, and political crisis. It is sometimes confused with Ireland’s banking crisis, but Iceland’s distinctive feature was the outsized scale of its banking system compared with the national economy.