Indeed they greatly outgrew the local economy (which after all is very small, with a national population of less than half a million persons) and were heavily involved in the financing of international investment ventures of some of their Iceland-based customers.
When these banks – middle sized in an international comparison – failed, the national authorities regarded the burden of meeting all of their liabilities as being too great to be assumed, and their rescue and restructuring of these entities was partial only, with much of the foreign liabilities not covered, a matter which led to a fraught international negotiation, especially with the authorities in the UK and Netherlands.