In October 2008 Iceland suffered a severe financial crisis that made the nation almost bankrupt. The root cause of the crisis is closely related to a large financial bubble which had been created by the speedy process of internationalization of the banking sector after its privatization and the loose financial regulations. The bubble crashed under adverse external conditions. The rapid development of financial internationalization accelerated the financial expansion in Iceland. The following lessons can be drawn from the crisis：the strategy of “going global” for the banking sector should be implemented in a cautious way；lax government regulations over the financial sector should be avoided；credit expansion should not be used as a way of stimulating the economy；the relationship between upgrading the industrial structures and making use of the comparative advantage should be dealt with properly；it is necessary to build up a set of early warning system for financial institutions.