In establishing Landsbankinn, the Icelandic parliament hoped to boost monetary transactions and encourage the country's nascent industries. Following its opening on 1 July 1886, the bank's first decades of operation were restricted by its limited financial capacity; it was little more than a savings and loan society.
Following the turn of the 20th century, however, Icelandic society progressed and prospered as industrialisation finally made inroads, and the bank grew and developed in parallel to the nation. In the 1920s Landsbankinn became Iceland's largest bank, and was made responsible for issuing its bank notes. After the issuing of banknotes was transferred to the newly established Central Bank of Iceland in 1961, Landsbankinn continued to develop as a commercial bank, expanding its branch network in the ensuing decades.