The collapse of Iceland’s banks: the predictable end of a non-viable business model

In the first half of 2008, Buiter and Sibert were invited to study Iceland’s financial problems. They identified the “vulnerable quartet” of (1) a small country with (2) a large banking sector, (3) its own currency and (4) limited fiscal capacity – a quartet that meant Iceland’s banking model was not viable. How right they were. This column summarises the report, which is now available as CEPR Policy Insight No. 26 with an October 2008 update.

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