OK as I am reading the paper, here is an important sentence (“Goes to intent, your honor”):
The result has been a movement toward Iceland’s becoming an international banking center (although on a small scale because the country is, after all, a microstate), where its banks perform financial intermediation, mostly outside of the country… the
Icelandic banking system has changed from a system of local depositary institutions to an international financial intermediator in only five years.
Switzerland, Hong Kong, London, New York. Mishkin and Herbertsson should have been asking themselves: Does a huge new money center pop up in 5 years because it has comparative advantage, or because there is lax financial regulation and consequently much leverage? If you wanted to argue the former, some evidence of rapid successful expansion of money market without an underlying fundamental change in financial flows (i.e. no resource rents) would be in order. They provide none.