Iceland and the International Monetary Fund was to stem capital outflows, to restore confidence in the Icelandic economy and to thus stabilize the Icelandic Krona (ISK) 2008–2011 Icelandic financial crisis. Measures adopted by Iceland included an emergency nationalization of the failing banks, a vote of the Icelandic parliament gave the FME (Icelandic Financial Supervisory Authority) broad authority over the insolvent banks. FME proceeded to audit these banks and to split their assets. Measures were also introduced to increase the minimum capital adequacy ratio of the banks to 10% as a part of the effort to re establish confidence in the economy. As a part of these
Iceland and the International Monetary Fund reforms the authority of the FME was increased to improve the stability of the Icelandic banking sector and enforce the introduced measures. Along with regulatory and banking changes, fiscal policy was also modified to respond the the shock in the following ways. The assumption of the banking sector debt by the Bank of Iceland was one of the initial measures acted upon. As a consequence the public debt increased from 29% in 2007 to 105% of GDP by 2009. To cope with the increased debt burden the Icelandic government adopted a medium term debt reduction plan; the structural balance be