March 26, 2009

Warning system failed over Icelandic banks

Communication breakdowns in Britain resulted in millions of dollars in investments in Icelandic banks just before their collapse, a U.K. auditor said.

A report issued by Britain's Audit Commission detailed the breakdowns, including the failure to read an e-mail message, which resulted in the Kent County Council investing $4.3 million days before the collapses began, The Times of London reported Thursday.

Similar breakdowns resulted in $48 million in ill-timed deposits by seven councils, The Times said.

Even the Audit Commission had $14.5 million invested in Icelandic banks when they collapsed, the newspaper said.

Icelandic bank Glitnir was nationalized Sept. 29 and two others, Landsbanki and Kaupthing, weren't far behind, their losses stemming from Lehman Brother's Holdings Inc. filing for bankruptcy in September.

The report says regulators at the Financial Services Authority were aware Icelandic banks were at risk at the beginning of 2008 and informed the Treasury and the Bank of England. However, neither institution passed the word along to the Department for Communities or the Audit Commission, the report says.