Deutsche Report Prompts Lawmakers to Query to Sedlabanki

Iceland’s legislature will summon central bank Governor Mar Gudmundsson to have him explain an alleged exemption from the nation’s capital controls granted to Deutsche Bank AG.

Parliament’s “committee chairman Helgi Hjorvar has agreed to summon Governor Mar Gudmundsson before the committee, although a date has yet to be set,” Lilja Mosesdottir, an independent member of legislature in Reykjavik who sits on the nation’s economy and commerce committee, said in a telephone interview.

Morgunbladid, Iceland’s second-largest newspaper, on Sept. 19 reported that Deutsche Bank had been granted permission to exchange 15 billion kronur ($122 million) in funds affected by capital controls. The central bank published a statement the same day saying the report was “mostly inaccurate.”

No flows that would have any “substantial effect” on the krona exchange rate have been granted exemption from the capital controls, the bank said. No foreign exchange has left the island and the currency reserves haven’t been used to balance any such transaction, the bank said.

When asked whether kronur affected by the capital controls might have been exchanged without leaving the country, central bank spokesman Stefan Stefansson declined to comment. Morgunbladid reporter Hordur Aegisson said by phone last week that the central bank’s comments won’t prompt him to retract his article. Deutsche Bank spokesman Christian Streckert declined to comment today and on the day the article was published.

Conflicting Reports

Parliament is now seeking formal assurance from the central bank that the capital controls, put in place in 2008 after Iceland’s banking meltdown sent the krona plunging 80 percent against the euro offshore, are being unwound within the framework approved by lawmakers.

Mosesdottir said she’s concerned that the central bank is caving in to pressure from organizations with bigger financial clout than Iceland. The nation’s gross domestic product reached $13.5 billion last year, compared with Deutsche Bank’s market value of almost $40 billion.

“The central bank needs to do better in its explanations of what exemptions are available to the capital controls, in order to avoid people getting the feeling that the controls are governed with corruption,” Mosesdottir said.

Financial Clout

The central bank is seeking to phase out the controls gradually through currency auctions by 2015. Iceland is unlikely to return to a free-float krona and has signaled it will probably switch to the euro after joining the European Union, for which it started accession talks in 2010.

A working group consisting of members from the European Commission, the European Central Bank, the International Monetary Fund and Icelandic officials are expected to deliver an interim report on possibilities for removing the capital controls by year end, Iceland’s Finance Ministry said today.

“Iceland is running out of time,” Mosesdottir said. “There are parties and corporations like Deutsche Bank, whose market cap is double Iceland’s GDP, that will do anything they can to exchange their offshore kronur into foreign currencies, to the detriment of Iceland’s economy. It’s time for Iceland to sort this out -- we need to be brave.”

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