It therefore comes as no surprise to hear the view expressed that the capital controls should be maintained on a more permanent basis. This is not as attractive an option as might appear at first glance, however. In the first place, liquid capital cannot be kept here forcibly for an indefinite period of time. The controls are a violation of various international agreements signed by Iceland. They are tolerated as long as Iceland follows the economic Recovery programme supported by the IMF, and thus indirectly by the member states of the EEA, OECD, and the Fund itself. Soon after this programme concludes, the controls will likely have to disappear; i.e., if the Icelandic government does not wish to renege on international treaties it has ratified. Eventually, frozen capital will have to be allowed to go wherever it wishes. Second, long-term confidence cannot be established as long as uncertainty exists as to how much capital is tied up in ISK assets simply because of the capital controls. This uncertainty will not dissipate fully until they are removed. Until that time, there is a risk that it will restrain foreign investment, which is a premise for export-driven economic recovery. Third, the hefty profits that can accrue to parties that circumvent the capital controls undermine business ethics and create a competitive advantage vis-à-vis those who abide by the law. The controls prompt individuals and firms to devote efforts to seeking ways to circumvent them, resulting in waste of resources and excess cost in the economy in the longer term.
In my opinion, a balance must be sought between the structure of ownership of a credit institution in resolution and the origin of the public funds which may be used in the process, with home country fiscal authorities covering the majority of the proceeds, once the asset quality review has proven that host country supervision was carried out correctly and effectively. I hope that an appropriate solution will be found to this matter, the same as in the case of the concerns voiced by some non-euro area countries in the early stages of the Banking Union project. What I have in mind is the issue of the representation in the decision-making mechanisms and that of the contribution requirements in the event of their opting in the Banking Union. Both concerns have been addressed during the negotiations. Specifically, the unequal status of non-euro area countries in the single supervisory mechanism decision-making bodies – given their lack of representation in the Governing Council of the European Central Bank, even though they enjoy representation in the Supervisory Board – has been addressed by establishing a mediatory body which would intervene in case a decision of the Supervisory Board is overturned by the Governing Council. BIS central bankers’ speeches  5  Furthermore, the current decision-making setup of the Single Resolution Mechanism ensures equal treatment of the countries participating in the Banking Union, regardless of whether they are Eurozone countries or countries that have established “close cooperation”.