Growing fears of banking crisis in Iceland

Fears of a banking crisis in Iceland are rife now after the country’s third-biggest bank has been bailed out by the Government and, as a result, credit-rating companies are turning negative the country.

The Icelandic Government stepped in to help Glitnir earlier this week by using £478 million to bail out the bank and this rescue followed a string of bailouts in Europe flowing the credit crunch.

Iceland’s two other big banks, Landsbanki and Kaupthing Edge are also showing signs of weakness despite their popularity in the UK.

Standard & Poor’s and Fitch Ratings lowered the country’s rating as did Moody’s Investors Service now that the country is on alert as a potential downgrading is being monitored.

Both remaining banks have seen credit default swap rates increase.

The reason for any potential downgrading is due to the fact that the cost of insuring against a default by Iceland rose following the bailout of Glitnir.

As a result Iceland’s krona has tumbled 11 percent this week to 106.06 per dollar as it continues to fall. It has experienced a loss of 25 percent already in the last three months.

Story link: Growing fears of banking crisis in Iceland