Customers leave the main branch of Landsbankinn Bank in Reykjavik
Customers leave the main branch of Landsbankinn Bank in ReykjavikReuters

Iceland has jailed the former head of Landsbanki over his role in the financial sector collapse in 2008.

Sigurjon Arnason was jailed for 12 months for artificially boosting stock prices in the run up to the banking crash which was, relative to the size of its economy, the largest systemic collapse of any country in economic history.

Landsbanki was Iceland's second-largest lender before the crash and Arnason's imprisonment means that the CEOs of all of Iceland's three biggest banks have been sent to prison. Larus Welding, formerly CEO of Glitner and the former CEO and Chairman of Kaupthing, Hreidar Mar Sigurdsson and Sigurdur Einarsson, have also served time in prison.

The executives were found guilty of manipulating share prices by offering loans to investors on the condition that they purchase bank shares. When the Qatari investor Mohammed bin Khalifa al-Thani poured significant capital into Kaupthing in September 2008, for instance, it made it appear that the bank was stable. It subsequently failed.

By the time Iceland's three largest banks had been taken under government control, they had run up debt of more than 11 times the national GDP. Iceland's Financial Services Authority alleged that the executives were manipulating share prices for up to five years before the crash.

The Icelandic government nationalised the banks' domestic debt, but allowed the lenders to default on their overseas debts, a move that angered overseas governments. It left more than half a million investors (more than Iceland's entire population) with frozen assets.

And while it didn't save the country from a sharp recession, the move has been since hailed as one that rescued the country from bankruptcy.

Iceland received a bailout package of $4.6bn in November 2008, composed of IMF loans and loans and currency swaps from Scandinavian neighbours. GDP fell by 5.5% over the first half of 2010, as the government embarked on economic and financial restructuring.

By the middle of 2012, however, Iceland was in full recovery and has been hailed as a model in recovery from economic crisis. Its willingness to jail top bankers has also garnered plaudits from across the world.

Charlie McGrath, founder of alternative news channel Wide Awake News, wrote: "So we see an actual government, an actual people and nation stepping up and saying: "I'm sorry, you committed fraud. You screwed over a nation. And you are going to pay for it by your butt being put behind bars."

"This is exactly what needed to happen in the United States and in the rest of the world. And my hat is off to Iceland for standing up to these bankers."