Page last updated at 18:09 GMT, Thursday, 9 October 2008 19:09 UK

Iceland nationalises biggest bank

Geir Haarde on the 'painful process' facing the banking industry

Iceland has nationalised its biggest bank, Kaupthing, and suspended trade on its stock exchange in an attempt to prevent further panic in the country.

Kaupthing is the third bank to be rescued by Iceland's government.

The OMX Nordic Exchange Iceland is closed for trading for two days because of "unusual market conditions" and will reopen on Monday.

Meanwhile, Iceland's Prime Minister Geir Haarde criticised the UK's move to freeze Icelandic bank assets.

Mr Haarde said the UK used anti-terrorism legislation to freeze assets in Landsbanki in order to protect UK savings in one of its units, Icesave.

"We do not consider this to be a particularly friendly act. But we understand that the UK authorities need to act in the interests of their citizens," he said.

Over the past years, Iceland has pursued a policy of inflation targeting, similar to the UK..In the case of Iceland it was disastrous.
Jon Danielsson, Economist
London School of Economics

Prime Minister Gordon Brown has condemned Iceland's handling of the collapse of its banks and its failure to guarantee British savers' deposits.

Mr Brown said it was "effectively illegal" and "completely unacceptable".

Unusual conditions

Mr Haarde said Iceland had not decided whether to seek help from the International Monetary Fund to weather the crisis.

The country's Financial Supervisory Authority said it took over Kaupthing to safeguard its domestic banking system.

All domestic deposits at the bank were fully guaranteed, it added.

On Wednesday, the UK Treasury arranged for ING Direct to take over the 2.5bn of deposits of 160,000 UK customers of Kaupthing's online arm, Kaupthing Edge.

The Swedish central bank had already agreed to provide a loan to the bank's Swedish arm.

Iceland's government has now seized control of all three of the nation's major banks. Landsbanki and Glitnir were taken over earlier this week.

The country of just 300,000 people has struggled to cope with the global financial crisis.

"The action taken... was a necessary first step in achieving the objectives of the Icelandic government and parliament to ensure the continued orderly operation of domestic banking and the safety of domestic deposits," Iceland's Financial Supervisory Authority said.

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