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# Iceland, October 2008: Payments Held at Home and Stalled at the Border
- URL: https://paper-trail.ghost.io/iceland-october-2008-payments-held-at-home-and-stalled-at-the-border/
- Published: 2026-11-03T20:30:00.000Z
- Updated: 2026-11-03T20:29:59.000Z
- Description: Iceland's three largest banks failed in October 2008. Payments inside the country kept moving; payments to and from abroad stalled.
- Author: Paper Trail

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| 01The Hour10:10Wednesday 8 October 2008\. London.At 10.00 that morning the Treasury in London made the Landsbanki Freezing Order. It came into force ten minutes later and was laid before Parliament at noon.It froze funds owned, held or controlled by Landsbanki. It also froze funds relating to Landsbanki held by the Central Bank of Iceland, the Icelandic Financial Supervisory Authority and the Government of Iceland, and barred anyone from moving them.In Reykjavik, the supervisory authority had taken control of Landsbanki the day before. Its British internet arm, Icesave, had already stopped taking deposits or withdrawal requests.02The SequenceReconstructed to the day. The freezing order is the one clock time the record gives.6 OctParliament passed emergency legislation giving the state wide powers over the financial system, and trading in bank shares was suspended. The Prime Minister's Office said deposits at domestic commercial and savings banks, and at their branches in Iceland, were fully protected.7 OctThe Financial Supervisory Authority took control of Landsbanki under the new law. The central bank fixed the krona at 131 to the euro.7 OctIcesave posted a notice on its British website: 'We are not currently processing any deposits or any withdrawal requests through our Icesave Internet accounts.' In downtown Reykjavik, a man leaving a Landsbanki branch told AP he could not sell his shares or withdraw money. 'Everything is closed,' he said.8 OctThe central bank said there was insufficient support for its rate and stopped dealing at it. The authority announced control of Glitnir. In Britain, the online Kaupthing Edge deposits were moved by order, with retail deposits going to ING Direct.9 OctThe authority took control of Kaupthing and decided that a new state-owned Landsbanki would take over the old bank's Icelandic operations and domestic deposits. Nordea said the krona had not traded on the spot market that day.10 OctThe central bank sent instructions on foreign currency outflows to deposit institutions. The text is in section 05.11 OctNew Landsbanki said all its domestic branches, call center, cash machines and internet banking would be open for business as usual.14 OctBloomberg reported wholesalers abroad asking Icelandic retailers to pay before shipping, where they would normally give 30 to 90 days of credit. A trade federation head said one large supermarket chain could not get foreign currency, and another retailer's electronic payment did not go through.14 OctA Reykjavik discount grocer said sales had doubled. Its warehouse held about two weeks of stock.15 OctThe central bank agreed temporary arrangements with market makers: daily auctions would set an indicative rate for the krona.16 OctThe central bank said some foreign banks were not executing normal payment orders to Icelandic banks, most of all British counterparties. It was routing payments in and out through its own accounts abroad, with an assurance that funds would reach the Icelandic account holder. The method had worked with Denmark. |
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| 03The Hidden DependencyInside Iceland, the payment systems held. The central bank later reported that domestic payment intermediation continued to function smoothly through the collapse.Payments across the border ran on something less visible: the three banks' own accounts with lenders abroad. When the banks failed, those accounts were closed, and with them their means of moving payments to and from Iceland, the central bank's 2008 annual report said.On 16 October the central bank said some foreign banks were holding back payment orders for fear of a moratorium or misdirected funds. Its annual report said the British freezing order made matters worse.Money moved inside the country on domestic systems; money crossing the border had moved through accounts the failed banks held abroad.04What Still WorkedDomestic payment systemsThe central bank reported they maintained full functionality. New Landsbanki said its branches, cash machines and internet banking would open as usual.Central bank foreign accountsCarried payments to and from Iceland in place of the failed banks' channels. By 16 October this had worked with Denmark.IcebankThe annual report names Sparisjodabankinn, or Icebank, alongside the central bank as the remaining cross-border payment channels.CardsOn 16 October the central bank said Icelandic card use at home and abroad was proceeding smoothly. A Reykjavik journalist told PBS NewsHour the next day that students abroad could not use their debit cards. |
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| 05On the RecordThe Document10 October 2008Central Bank of Iceland, 'Temporary modifications in currency outflow.' It opened: 'Due to the unusual circumstances currently reigning, the following information and instructions are directed toward deposit institutions.'Bloomberg reported that lenders were told residents seeking foreign currency should first show documentation for their trip, and that lenders had been asked to give priority to food, drugs and oil.The central bank's annual report later said lenders were instructed to prioritise foreign exchange transactions in accordance with the statement.06The Pattern Library#1Cash machines continued to dispense through the bank closure under daily withdrawal limits that were imposed or lowered during the closure, and keeping the machines stocked with notes became a constraint.**Observed:** Cyprus 2013, Greece 2015.#2Suppliers stopped extending their usual payment terms and asked to be paid before shipping or on delivery.**Observed:** Iceland 2008.**CHANGED TODAY:** No existing entry gained Iceland 2008\. New entry #2 added. |
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