Kaupthing: Iceland's biggest bank, nationalized in a week

Kaupthing was Iceland's biggest bank, and by October 2008 Iceland's banks owed far more than the economy behind them could back — reporting at the time put the national debt exposure at 12 times GDP. In a single week all three of the country's big banks fell: Glitnir was nationalized days earlier, Landsbanki was taken over on 7 October, and on 9 October Kaupthing became the third, brought under state control using emergency powers. Prime Minister Geir Haarde warned of the risk of 'national bankruptcy' and said recovery would take 'several years.'

The trigger was partly foreign. Kaupthing's UK arm was placed in administration by Britain's Financial Services Authority on 8 October, and its £3 billion of UK deposits were sold to ING. The British government had already frozen the UK assets of a collapsed Icelandic bank using anti-terrorism legislation — a move Haarde protested: 'we were not pleased... they could not regard us as terrorists.' London promised to compensate British Icesave savers and vowed legal action against Iceland to recover the money.

Kaupthing's board resigned; executive chairman Sigurdur Einarsson claimed the bank had been performing well two weeks earlier. Emergency powers created a new bank for domestic operations; domestic deposits were fully guaranteed while the stock exchange halted trading on 9 October and shut until Monday. The week ended with virtually the entire banking system under state control — and investors such as Robert Tchenguiz reporting losses exceeding £800 million.