finance, bankruptcy, banksWhen the three major Icelandic banks crashed at the beginning of the financial crisis, why did the Icelandic government choose to bail them out. The reason why I am asking is because these banks were huge compared to the Icelandic GDP. Wouldn’t it have been cheaper to let them go down and either start a new national bank to take over the loans, which were likely to get repaid?
My understanding of the wikipedia article on this subject is that the banks were not bailed out, though Icelander's deposits were protected.
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