Iceland's government nationalises biggest bank Kaupthing
Friday, 10 October 2008

AFP, REYKJAVIK - Iceland's government nationalised the country's biggest bank, Kaupthing, financial authorities said Thursday, just days after the second and third biggest banks were brought under state control.

"Based on new legislation, the Icelandic Financial Supervisory Authority (FME) proceeds to take control of Kaupthing to ensure continued commercial bank operations in Iceland," the authority said in a statement as Iceland's economy verges on collapse.
 
The move was aimed at "guaranteeing a functioning domestic banking system," it said.
 
Iceland's parliament on Monday adopted emergency laws to save the financial sector and ward off national bankruptcy, allowing the government to take control of all banks and financial bodies, take over assets, merge institutions and force institutions to declare bankruptcy.
 
The government nationalised Iceland's second- and third-biggest banks Landsbanki and Glitnir earlier this week.
 
As was the case with those banks, "domestic deposits are fully guaranteed" for Kaupthing's customers, the Financial Supervisory Authority said, adding that the bank's domestic branches, call centres, cash machines (ATMs) and internet operations would be open for business as usual.
 
However, Kaupthing's operations in Britain, Finland and Sweden were halted.
 
In London, British local authorities appealed to Downing Street to guarantee hundreds of millions of pounds (euros, dollars) of their savings invested in moribund Icelandic banks.
 
The calls from local councils -- responsible for cultural provisions, refuse collection and other social services -- came just a day after London threatened to take legal action against Iceland to ensure that individual British depositors had their savings returned.
 
Reykjavik has said the two countries would work together through official diplomatic channels to try and find a solution.
 
Meanwhile, anger was mounting among Icelanders over political moves in the 1990s to liberalise the financial markets.
 
Observers say the coalition government of Icelandic Prime Minister Geir Haarde risks implosion.
 
Haarde's Independence Party is being widely blamed for having deregulated the market without providing any safeguards.
 
"There is an underlying anger against the Independence Party, which has been in power since 1991 and which used to be headed by the current governor of the central bank (David Oddsson) who, in a way, brought on this crisis," Reykjavik University professor Torfi Tulinius explained.
 
The Independence Party's coalition partner, the Social Democrats, could try to benefit from the growing discontent, he said.
 
Since the prime minister on Monday addressed the nation in a rare televised address, Reykjavik has taken a slew of steps aimed at resolving the crisis.
 
But it announced Wednesday it would no longer continue efforts to shore up its currency, a day after it tried to peg the krona to the euro.
 
The krona has lost half its value against the euro since the beginning of the year.
 
The Icelandic banks have meanwhile begun selling off foreign subsidiaries in a bid to remain afloat.
 
The Atlantic nation's economy is largely based on its financial sector, which is eight or nine times the country's gross domestic product (GDP).
 
In 2007, Iceland's GDP was 1.29 trillion kronur (8.25 billion euros, 11.7 billion dollars). The current crisis therefore threatens the country's entire economy.
 
Haarde said Wednesday the island's economic recovery would take "years."
 
However, he said that "we're optimistic, we have a positive attitude," and added that the country had plentiful resources "on land and sea," a reference to its fishing and aluminium smelting industries.
 
Iceland has been seeking financial support from abroad but with little apparent success. It has said it will begin negotiations next week with Moscow for a loan estimated at four billion euros.

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