Explanations of the Icelandic Bank Collapse

Professors R. Wade and H.-J. Chang explain the 2008 collapse of the Icelandic banks as a consequence of deregulation and even a “neo-liberal experiment”. Wade uses the notion of a “shadow elite” to characterise power relationships before the collapse. Here, these explanations will be explored. Was financial regulation laxer in Iceland than in other EEA countries? Was a “neo-liberal experiment” conducted in 1991–2004? What does such a claim mean? Thirdly, was a “shadow elite” very powerful in the years before the bank collapse? How can such a “shadow elite”, and its power, be identified? The conclusion is that these explanations are mostly unfounded. Financial regulation was the same in Iceland as in other EEA countries; there was no “neo-liberal” experiment in Iceland 1991–2004; during that period Iceland was not ruled by any one “shadow elite”, although some such elites existed. However, Wade and Chang may be right on two counts: In Iceland, bankers and businessmen were viewed with a certain laxness, especially in the years 2004–2008; and even if there is usually a competition between different “shadow elites” in a Western democracy, one such elite became quite powerful in Iceland 2004–2008