For most of its modern history, Iceland was a small economy built around fishing. A North Atlantic island with a population of around 320,000 and an annual gross domestic product measured in the tens of billions of dollars.

In the early 2000s, Iceland deregulated and privatized its banking sector. Three banks — Glitnir, Kaupthing, and Landsbanki — moved aggressively into international markets. They borrowed enormous sums on global wholesale funding markets at low interest rates and lent the money out at higher rates, both at home and across Europe. Online retail products like Landsbanki's Icesave attracted hundreds of thousands of depositors in the United Kingdom and the Netherlands.

By the autumn of 2008, the combined assets of the three banks were roughly ten times the annual GDP of Iceland itself. The country had become one of the most leveraged financial systems in the developed world, with no central bank capable of acting as lender of last resort at that scale.

When the 2008 global credit freeze arrived, the wholesale funding lines closed. Within five days in October 2008, all three banks collapsed. Relative to the size of the underlying economy, it remains the largest banking failure in history.

The krona lost roughly half its value against major currencies. Inflation rose above 18 percent. Unemployment jumped from under 2 percent to nearly 8.

Iceland's response was unusual. The state guaranteed domestic deposits but refused to bail out the foreign creditors of the failed banks. Senior bankers were prosecuted, and several served prison sentences for market manipulation and fraud.

A decade later, the economy had largely recovered, and a small country had become a real-time experiment in letting big banks fail.