Iceland’s three largest commercial banks collapsed during the 2008 global financial crisis: Glitnir, Landsbanki, and Kaupthing.
The banks had expanded rapidly before 2008, building balance sheets many times larger than Iceland’s domestic economy. They relied heavily on international wholesale funding, which became unavailable when global credit markets froze. The government could not realistically guarantee the banks’ enormous obligations.
Glitnir was placed into receivership first, followed by Landsbanki and Kaupthing in October 2008. The banking collapse caused the Icelandic króna to plunge and contributed to a severe recession. Iceland obtained emergency financing from the International Monetary Fund and other countries.
The crisis is often confused with Ireland’s banking crisis because both countries experienced property booms and major bank failures. Iceland’s distinctive feature was the extraordinary size of its banking sector relative to national output. Domestic depositors were protected through Icelandic authorities, while disputes over foreign depositors became known as the Icesave controversy.