The Competition Authority directs state-owned banks to conduct a competitive assessment of decisions regarding the future of companies.

The Competition Authority has today directed state-owned commercial banks that when making decisions concerning the future of companies, due regard should be had to the important long-term interests of the public and the business community, so that effective competition can thrive in as many markets as possible.s in this country. The Competition Authority has therefore instructed the banks to take into account ten specific principles when making such decisions.

The main principles cover, among other things, the following:

• That the measure which least distorts competition is chosen.
• Not to create increased oligopoly or undesirable management and ownership relationships, but rather to seek to reduce such a situation.
• That the interests of two competitors are not in the hands of the same parties.
• That objectivity in the disposal of assets is ensured.
• To create opportunities for new entrants to enter competitive markets and for more dispersed ownership of companies.
• That a competition officer is designated to oversee the competition assessment of measures, and that the decision-making process is transparent and documented.

The relevant parties shall publicly disclose the processes and working procedures intended to achieve the above.

The principles also apply to the decisions of resolution boards which manage the predecessors of the banks, and it is also desirable that they be taken into account by public authorities who might make decisions concerning the interests of companies in a competitive market.

The above-mentioned principles are published in the opinion No. 3/2008, Decisions by banks and governments on the future of companies in competitive markets, a translation of which can also be accessed under Opinion no. 3/2008 on the English version of the site

Further information is provided by Páll Gunnar Pálsson, CEO.

Background information:
As is well known, the Icelandic financial market has recently been in great turmoil, and the Financial Supervisory Authority, with authorisation under the law, has No. 125/2008 on authorisation for an appropriation from the state treasury due to special circumstances in the financial market, etc. has taken over the operations of Kaupþing bank hf., Landsbanki Íslands hf. and Glitnir bank hf. Winding-up committees have been appointed to manage the banks. Subsequently, new banks have been established to take over the domestic banking operations of the three commercial banks. The new banks are owned by the Icelandic state.

It is clear that many Icelandic companies are now struggling with operational difficulties. The companies are striving to keep their operations running and to salvage assets in the wake of the collapse of the Icelandic commercial banks and the resulting pressure, on top of the measures taken due to the deteriorating business environment in recent months. Many of these companies have been in business with the aforementioned banks, and continued access to credit and facilities is essential for their operations.

With the management of new banks, and where applicable, those in charge of the banks that the Financial Supervisory Authority has decided to take over, lies extensive decision-making power over the course of business. In the current circumstances, their decisions are more likely than ever to have an impact on future competitive conditions and, consequently, on the effectiveness of business activity in key markets. The Confederation of British Industry and others have emphasised the need to establish a professional and transparent process for decisions of this kind.

Competition in business is essential for Icelandic business life, as it increases public welfare and promotes efficiency in business operations. Effective competition creates jobs and contributes to increased productivity and economic growth. The experience of other countries during economic crises and academic research show that measures to promote competition contribute to a faster recovery of the economy. The same sources show that measures which limit competition prolong and exacerbate economic hardship, thereby working against recovery.

In this light, it is extremely important that, alongside the aforementioned decisions by the banks, a competitive assessment of the relevant measures is carried out, without setting aside the obvious interest in maximising value, secure the banks' interests in the long term and act swiftly. It is important that when making decisions concerning the future of companies operating in key markets, due regard is had to the important long-term interests of the public and the business community in ensuring that effective competition can thrive in as many markets as possible in this country.