The purpose of the Guarantee Fund is to provide customers of the banks with minimum protection in the event of the banks’ encountering problems with solvency. The Icelandic banks pay into the fund in respect of their operations in Iceland and their branches in other Member States of the European Economic Area (EEA).

If a bank is unable to repay its customers’ deposits, the fund is obliged to compensate them to the extent covered by its resources, and to a minimum of EUR 20,887 for each depositor (just over ISK 3.5 million based on the sales exchange rate on 22 April 2009; this is the rate used as the base for the conversion of claims against the estate of Landsbanki Íslands hf.). This is referred to as the ‘deposit guarantee’.

Icelandic legislation on the Guarantee Fund was passed in order to implement the rules of the European Union regarding deposit guarantees. These rules are part of the EEA Agreement, and are intended to ensure a minimum level of security for customers of the banks.