The government did not bail out it's failing banks. The recovery was painful but relatively quick. The people of Iceland did not bear the brunt of the debts incurred by private institutions, as the Keynesians and Socialists have insisted upon in Europe and the United States.
Here is Daniel Hannan, blogging in The Telegraph.
Imprudent granting of credit is bound to prove just as ruinous to a bank as to any other merchant.
Ludwig von Mises.