Catching a cold
Fears over the strength of the Icelandic banking system have caused the krona to plunge, prompting the country's central bank to hike interest rates to record levels. The initiative seems to have worked, with the currency rebounding and credit spreads tightening. But has the country really weathered the storm? By Wietske Blees
Events at Northern Rock in September last year starkly revealed the folly of underestimating the dangers posed by liquidity risk and over-relying on the wholesale markets for funding. Fears of subprime exposures in underlying portfolios prompted investors to shun the previously unstoppable securitisation market, causing new issuance to grind to a halt. Unable to raise new funds, and with billions of pounds worth of liabilities falling due, the UK building society had to turn to the Bank of
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