James Coney 

The financial crisis' most significant moment

James Coney

James Coney

At about 8pm on 6 October 2008, I got a phone call from the news desk of the Daily Mail where I worked as a journalist.

Reports were swirling that Icesave bank was about to go bust. Was it true?

I had been following the rise of Icesave and its market-leading interest rates and had spoken on occasion to its managing director Mark Sismey-Durrant. So I called him on his mobile.

He picked up, and I could hear in the background the hubbub of a meeting. Was it true the bank was about to go under? “Absolutely not,” he said, before offering some words about the bank being fully supported by its Icelandic parent company Landsbanki.

He apologised, said he was in a meeting, and hung up.

We never spoke again. The following morning as I chatted to the Daily Mail’s news editor about the call, Icesave collapsed. Mr Sismey-Durrant’s mobile phone was disconnected.

For me, it was this moment, the collapse of Icesave, that was the most significant moment of the financial crisis, not Lehman’s, as it is the one that has had the most lasting ramifications.

While other institutions, most notably Northern Rock, but also others, died because of the financial crisis – their customers were all saved by other building societies and banks.

The 300,000 customers of Icesave were abandoned, and became the most major test the Financial Services Compensation Scheme has ever been put under. While £16,300 was covered by the Icelandic scheme, funds up to £50,000 had to be protected by the UK.

But Icesave was also the first ‘quiet’ run on a bank. When we have seen runs on banks before there have been pictures of people queuing round the block to get their savings.

Icesave was online only. So in the days leading up to the collapse thousands had tried to move their money from their home computer. There was no jostling, no shouting. In fact no one knew it was happening.

The 300,000 people who lost their savings in Icesave, of which I am one, were used as guinea pigs of the financial system to see if the safeguards put in place really could cope.

But Icesave also changed people’s perception. No more did savers simply trust new organisations, and I have been pleased to see them ask very real questions about how market-leading rates are funded.

It made people realise savings accounts are not totally risk free. Icesave, which at one point had paid as much as 7 per cent, formed an unrealistic environment. 

In a newspaper column last week, Bank of England governor Mark Carney said that savers had to take the pain to help the UK out of the financial crisis. But though the lessons of Icesave have been learned, he also warned the four most expensive words in the English language are: “This time is different.”