A report into Iceland's devastating 2008 banking collapse charges that the Nordic nation's former prime minister and central bank chief acted with "gross negligence" in allowing the financial sector to overheat without adequate oversight.
The 2,300-page government-commissioned report detailed a litany of mistakes made in the lead-up to the bank meltdown, an event that wreaked political and economic havoc in the tiny island nation.
Pall Hreinsson, the supreme court judge appointed to head the Special Investigation Commission, singled out seven former officials including then Prime Minister Geir Haarde and central bank chief David Oddsson for particular criticism.
"The commission finds that these seven have demonstrated gross negligence in the discharge of their duties," Pall Hreinsson told reporters. "They had the necessary information, but did not act accordingly, each pointing the finger at the next person."
Hreinsson said that a parliamentary committee would consider whether legal action should be taken against the seven, rounded out by Oddsson's co-governors Eirikur Gundason and Ingimundur Fridriksson, former finance minister Arni Mathiessen, former banking minister Bjorgvin Sigurdsson, and Jonas Jonsson, former director of Iceland's financial services watchdog he added.
Sigurdsson said that he would resign his post as parliamentary leader of the Social Democratic Alliance, but would not resign from parliament. There was no immediate response from the six other men.
The report found that the country's three leading banks — Glitnir, Kaupthing and Landsbanki — simply got too big and overwhelmed its financial system when they ran into trouble with excessive risk taking.
"The commission is of the opinion that the main reasons for the fall of the banks, among other things, was that the finances of the banks and the loans made by them had grown and surpassed the infrastructure of the banks themselves," said Sigridur Benediktsdottir, a Yale economics lecturer and commission member. "The main reason for the fall of the banks was their growth and their size when they fell."
By the time they dropped, domino-like, within a week of each other in October 2008 after failing to acquire short-term funding, the banking sector had grown to dwarf the rest of the economy by around nine times.
Prime Minister Johanna Sigurdardottir, who took over when Haarde's government was ousted, welcomed the report as a reminder that Iceland needed to carry out further "rigorous reform" of its financial sector after "the ideology of an unregulated free market utterly failed."
In one major blunder detailed in the report, staff at the Icelandic central bank, forgot to extend a $500 million loan agreement, reached in March 2008, with the Bank of International Settlements in Basel. A belated attempt to receive an extension was not granted by the international bank.
The report said that it was a key error at a time when few things were more important than building up Iceland's foreign currency reserves.
The central bank then turned to the Bank of England in April 2008, seeking a currency swap agreement. Mervyn King, the British central bank's governor, refused, but offered to help Iceland to sustainably reduce the size and burden of its banking sector. Oddsson rejected that offer.
Benediktsdottir said the problems were exacerbated by a lack of staffing and experience at the Financial Supervisory Authority, where action was not taken "despite seeing laws broken," she said.
Tight ownership in the financial sector — many of the bank executives were also heading up investment firms that bought up businesses around the world funded by those banks — added to the domino stack.
"These investment companies had abnormal, easy access to loans from the banks in the capacity of ownership and influences within them," Benediktsdottir said.
The extent of their influence was highlighted Monday when the committee put in charge of Glitnir lodged a lawsuit against businessman Jon Asgeir Johannesson, claiming he used his influence as a major shareholder at the bank to obtain a 6 billion krona personal loan.
Britain's Serious Fraud Office opened an investigation in December into suspected fraud by Kaupthing, focusing on its efforts to attract British investors to its "high yield" deposit account.
Monday's report also delved into the $5.3 billion that Iceland owes to Britain and the Netherlands after the collapse of the Icesave online bank, a subsidary of Landsbanki.
The report said that the central bank should have been aware its foreign currency reserves would be too small to bail out Landsbanki and criticised authorities for failing to change Landsbanki's structure despite clear concerns about its future.
The Icesave dispute has held up vital money promised by the International Monetary Fund to help Iceland back on its feet after the banking collapse brought the economy to its knees, its krona currency plummeted and protests toppled the government.
The IMF has already paid out about $1 billion from the agreed $2.1 billion package, but further reviews on the country's progress — a requirement for the release of further funds — have been delayed.
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