The Financial Supervisory Authority(FME) has granted ISB Holding ehf. permission to own a qualifying holding inÍslandsbanki on behalf of Glitnir Bank hf. The permission is granted followinga September 13, 2009, agreement between Glitnir and the Icelandic Ministry ofFinance, authorising Glitnir to acquire a 95% holding in Íslandsbanki uponfulfilment of specified conditions.

The FME had deemed that Glitnir,which is in moratorium and undergoing winding-up proceedings, was not eligibleto own a qualifying holding in a financial undertaking. The FME specified,however, that because of the extraordinary circumstances leading to theagreement, and because it represents an agreement between the partiesconcerning Íslandsbanki operations, it would be possible to investigate whetherthe applicant could take measures that would suffice to limit the detrimentaleffect of the ownership; cf. Article 43 of the Act on Financial Undertakings,no. 161/2002. The conclusion was to grant permission conditional upon decisivemeasures pertaining to the financial strength of the applicant, the ownership ofthe bank, the interest of supervision, and the owners' aims.

The applicant's financial strengthshall be guaranteed through access to a special contingency fund that can betapped if Íslandsbanki is faced with severe operational adversity. The amountof the fund was assessed by Íslandsbanki at the behest of the FME on the basisof co-ordinated methodology developed within the framework of the FME'sappraisal of the new banks in May 2009.

The bank's ownership shall be in thehands of a separate subsidiary of Glitnir (ISB Holding), which is directed by aboard with a majority of its members independent of Glitnir, large creditors,and Íslandsbanki itself. The Glitnir resolution committee is offered the optionof appointing one representative to sit on the three-member board of ISBHolding, while the other two (including the chairman) must be impartial. Thenomination of all members of the ISB Holding board is subject to the approvalof the FME. Members must meet the FME's requirements, including thosepertaining to knowledge and experience of financial operations.

The board of ISB Holding shall wieldGlitnir's voting rights in Íslandsbanki and shall appoint the members of thebank's board. The FME also stipulates that only one of the members of thebank's board may represent the resolution committee, while the others(including the chairman) shall be impartial. This means that board members maynot work as representatives of individual owners or creditors, nor may they bebound to them or to the bank itself by any type of special interests. Accordingto a special representation agreement between ISB Holding and Glitnir, Glitniragrees to respect the independence of the board of the former company and itsduty to promote sound, reliable operations at Íslandsbanki without external intervention.The board of ISB Holding is required to report to the FME on the implementationof this policy on a quarterly basis.

In order to facilitate supervision,Glitnir is required to transfer ownership of all subsidiaries with financialand insurance operations to a single parent company. This role is carried outby Glitnir Holding, a wholly owned subsidiary of Glitnir that is therefore theparent company of ISB Holding as well.

The owners' aims are restricted bymaking specified requirements for transactions with related parties, dividendpayments made from Íslandsbanki, and the sale of Íslandsbanki shares for thenext three years. In this context, Glitnir is required to notify the FME inadvance of proposed changes in ownership of shares in Íslandsbanki or ISBHolding. Upon receipt of such a notification, the FME will carry out a neweligibility assessment of the prospective owners if the change of ownershipaffects the board of the bank.

The FME has previously acquaintedthe three new banks with its supervision requirements, which are based on athorough appraisal, conducted in May 2009, of the banks' operability in termsof asset composition and funding and the probable economic outlook. Therequirements entail a minimum capital adequacy ratio of 16% instead of theprevious 8%, preparedness to withstand a new stress test assuming adverseeconomic developments for a longer period than generally expected, and morestringent liquidity requirements than before. In addition, the new banks'operating licences are conditional upon their implementing a detailed plan forimproved risk management and governance.

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