Iceland, also known as island, is a country located in the North Atlantic. The country covers 40,000 square miles and has a population of approximately 360,000 people (Iceland, 2016) . The country’s GDP per capita estimate as of 2018 stood at $54,743 million, placing it at position 5 in the list of countries with the highest GDPs per capita. Although it is in Europe, the country is one of the few standalone islands. Considering this, one would expect it to have its own unique governance style and banking regulatory systems. However, Iceland’s political structure is almost similar to what other countries have adopted. It amalgamates the prime minister system and the presidential system to form a robust governance system. This paper will look at the political structure of Iceland and will discuss the country’s financial structure by focusing on the financial crisis that it went through between 2008 and 2011.
Governance
Iceland is a parliamentary democracy that was established by its constitution which was implemented in 1944, making it the oldest constitution in the world (Kristjánsson, 2004) . According to the constitution, the president is the head of state and gets directly elected into that seat by a majority vote. The president rules for a four-year term and can run for the presidential office an unlimited number of times. The powers bestowed upon the president are similar to those of the heads of states in the United States and most other western countries. The real power lies with the parliament which comprises 63 members. This legislative branch is unicameral and members in the legislature are limited to four-year terms of service. The parliament is known as the Althingi (Hardarson & Kristinsson, 2010) . The head of the government is the prime minister who is also the head of the executive.
Delegate your assignment to our experts and they will do the rest.
It is worthwhile to note that legislative power is held by both the parliament and the government. In the United States, the functions of the executive are different from that of the legislature as the two are totally independent. However, both the United States and Iceland have their governments divided into three arms; the executive, the legislature, and the judiciary. Iceland’s judiciary is headed by the Supreme Court which plays head to the district court. The judiciary’s functions are independent of those by the executive and the legislature. Unlike the United States, the powers of the president in Iceland are limited as the office is largely deemed to be a ceremonial one. The president serves as a figurehead and a diplomat. Most of the functions of the executive are run by the office of the prime minister who heads the cabinet. The United States has no Prime Minister and the executive branch of government is headed by the president.
Banking Regulatory Systems in Iceland
Just like most other countries, Iceland suffered an economic crisis between 2008 and 2011. The three major Iceland banks; Glitnir, Landsbanki, and Kaupthing, overwhelmingly became bigger in the years preceding the financial crisis (Aliber & Zoega, 2011) . The banks expanded mainly because they had access to credit facilities from the international financial markets. This allowed the banks to hand out large short term debts to other countries, more so Netherlands and the UK. In late 2008, the country ran on its deposits and also could not refinance the short term debts it had handed out (Jónsson & Sigurgeirsson, 2016) . This led to severe economic depression. The country also witnessed political unrest. The country was able to come out of this crisis. Consequently, there were measures taken to improve the financial system in the country and also to avoid another possible financial meltdown.
Three major measures were taken (Ingimundarson, Urfalino, & Erlingsdóttir, 2016) . First, Iceland decided to apply to be a member of the European Union (EU) in 2009. This helped the country to adhere to international standards and, hence, made it more credible to the international markets. Luckily for it, the Basel III meeting had already taken place and improvements had been made to the standards set in the Basel II meeting. Iceland had to adhere to reforms in the Basel III meetings. First, the central role of common equity was strengthened by making the requirements of regulatory capital stricter (Caruana, 2010) . Secondly, banks were controlled on how they could participate in system-wide credit booms by using capital buffers. This helped to reduce loses whenever credit busts happened. The capital conservation buffer was also introduced to restrict payouts.
The second measure taken by Iceland was it made sure that the Stand-By-Agreement by the IMF was a success. This agreement had three pillars. The first pillar significantly hiked taxes and hence stabilized the debts by the central government to around 80% of the country’s GDP. The second pillar allowed downsized domestic banks to resurrect. The third pillar allowed for the restoration of normal financial linkages between Iceland and other countries by enacting capital controls. The third measure was the emergency legislation that the Iceland parliament enacted immediately the crisis hit. This legislation minimized the effects of the crisis on Iceland. The act allowed the Financial Supervisory Authority headed by Iceland to control the three large banks.
References
Aliber, R., & Zoega, G. (Eds.). (2011). Preludes to the Icelandic financial crisis . Springer.
Caruana, J. (2010). Basel III: towards a safer financial system.
Iceland, S. (2016). Iceland in figures 2016. Reykjavík, dostępny on-line: http://www. statice. is/media/49863/icelandinfigures2016. pdf (28.07. 2016) .
Hardarson, Ó. T., & Kristinsson, G. H. (2010). Iceland. In Elections in Europe (pp. 947-986). Nomos Verlagsgesellschaft mbH & Co. KG.
Ingimundarson, V., Urfalino, P., & Erlingsdóttir, I. (Eds.). (2016). Iceland’s financial crisis: The politics of blame, protest, and reconstruction . Routledge.
Jónsson, Á., & Sigurgeirsson, H. (2016). The Icelandic financial crisis. Palgrave Macmillan Studies in Banking and Financial Institutions .
Kristjánsson, S. (2004). Iceland: searching for democracy along three dimensions of citizen control. Scandinavian Political Studies , 27 (2), 153-174.
