Yesterday, the Special Investigation Commission (SIC) of the Icelandic Parliament issued its report on the causes of the Icelandic banking collapse. The full report is available only in Icelandic, with selected portions available in English.

In its press conference yesterday, the SIC identified the “rapid growth” of Iceland’s three largest banks as a “main cause of the failure.” The SIC also focused on the credibility of the Icelandic banking system, the leverage of the banks’ owners, and the banks’ “weak equity” as additional factors in the collapse.

The Prime Minister of Iceland, Johanna Sigurdardottir, acknowledged the significance of the report, stating that “[t]his important report will enable us to look forward by understanding what took place here in the months and years leading up to the banking collapse.” In analyzing the collapse, the Prime Minister specifically noted the failures of the private banks, the supervisory system, political institutions, the media and “the ideology of an unregulated free market,” but also stated that “[r]igorous reform has already been implemented.”

In addition to focusing on the causes of the banking collapse, the SIC’s 2,000 page report also includes a volume by a Working Group on Ethics, which analyzed the effect of “morality and work practices.” In its conclusions, the working group also recognized uncontrolled growth as a significant factor in the banking collapse, stating that, “in the wake of a flawed process of privatization, where inexperienced owners gained large shares, the banks were allowed to grow far beyond the ability to supervise them properly.” The group concluded that “although several individuals, in the financial, administrative, political and the public sphere, showed negligence and sometimes reprehensible action, the most important lessons to draw from these events are about weak social structures, political culture and public institutions.”

According to the Prime Minister, the Icelandic government will receive recommendations from a recently appointed commission of independent experts and “in the coming days, the government will carefully study the report’s analysis and findings…and make decisions accordingly.”