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efta court holds iceland was not required to ensure protection of depositors January 28, 2013

Posted by Bradley in : financial regulation, harmonization , trackback

One might ask what is the point of harmonization of deposit protection at a minimum level to facilitate cross border banking if a bank’s home state doesn’t have to regulate banks properly to limit stresses on the deposit insurance system or really do anything to ensure that the deposit protection will in fact be available in the event of bank failure. But this is what the EFTA court has held in EFTA Surveillance Authority v Iceland:

the Court holds that the Directive does not envisage that the defendant itself must ensure payments to depositors in the Icesave branches in the Netherlands and the United Kingdom, in accordance with Articles 7 and 10 of the Directive, in a systemic crisis of the magnitude experienced in Iceland.

For the future the impact of the decision is limited by the fact that the rules relating to deposit guarantees have changed since the crisis.

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