Banks and other financial institutions do not simply live in a bubble. Across the world, a variety of government agencies have been conjured to oversee and regulate the financial markets and entities which provide funds for everything from housing loans designed to change a family's life, to loans for massive regional projects designed to change an entire country, and everything in between. Without such entities, consumers and even entire governments could be taken advantage of, while financial markets could potentially be laid barren by unethical or unsustainable practices. Even with regulatory agencies, markets and financial systems are not free from damage, oscillations, or even collapse. ...view middle of the document...
This made the FME the main regulatory and supervisory entity for the Icelandic financial sector, including the credit, pension, insurance, and securities markets.
Functions Of The Machine
But what does the FME actually do? The FME is an independent state authority which is comprised of over 100 employees, whose backgrounds range from economics to engineering. Dozens of entities are “supervised” by the FME, whose purposes range from credits institutions such as commercial banks and securities companies, the Nasdaq OMX Nordic exchange stock market, and even pension funds and insurance companies located within Iceland ("Fjármálaeftirlitið", 2014).
On top of this supervision, the FME also houses the Insurance Complaints Committee and the Committee on Transactions with Financial Firms ("Fjármálaeftirlitið", 2014). According to the FME website, these two entities accept appeals produced by clients of insurance companies and financial firms respectively, to which meeting facilities and clerical assistance are provided to third party committees. However, the FME is not responsible for handling individual disputes but rather oversees that the public is educated about their rights and have access to the services necessary to settle disputes. As such, the FME acts as a portal between both government and private entities and the financial institutions with which they work.
According to the website 'Bonds.Is', which discusses Icelandic financial workings, some actions which are performed by the FME include conducting stress tests to monitor risk related to individual entities. They may perform on-site and off-site inspections of entities to ensure compliance. The FME produces guidelines for entities under supervision and compose legislation and regulation for the financial markets. To protect the public, they perform investigation of potential infringements, including anti money laundering and terrorism financing supervision, as well as market surveillance on securities markets. As the main supervisory entity in Iceland, the FME produces consumer information to help maintain coordination between individuals and regulated entities in order to generally keep the public educated ("FINANCIAL SUPERVISORY AUTHORITY", 2014).
The Chickens Come To Roost
To fully understand the key actions that were undertaken by the FME to help the phoenix of the Icelandic financial system rise from the ashes, we must set the stage for the buildup which set the disaster in motion. In the early 1990s, Iceland's banking sector was deregulated and in the early 2000’s, the three main banks in the country were privatized, namely Landsbanki, Glitnir, and Kaupthing (Gumbel, 2008). These three banks played a significant role in the downfall of the Icelandic economy.
You see, to native Icelanders, the modest country which was mainly known for its aluminum and fishing exports was practically overnight transformed into a world of “The Wolf Of Wallstreet”-esq luxury for the risk taking...