Page last updated at 15:30 GMT, Monday, 13 October 2008 16:30 UK

UK loan offered to Icelandic bank

Icesave website
Icesave customers were last able to access accounts on Monday

A 100m loan is being given by the Bank of England to the UK arm of the collapsed Icelandic bank Landsbanki to help repay the bank's UK creditors.

Savers with Icesave, the bank's internet operation, and any of its other UK depositors will benefit.

"This loan will help ensure an orderly wind-down of Landsbanki which will maximise the return to UK creditors," said the Treasury.

Icesave closed last week, leaving its 300,000 UK savers without their cash.

The loan was announced in the Commons by Chancellor Alistair Darling on Monday afternoon.

Precisely how money will be channelled to those who need it is yet to be made clear, and the Financial Services Compensation Scheme (FSCS) is still drawing up a plan on how savers will be compensated for their lost savings.

Earlier in the day, the chancellor said that a plan to assist business customers and savers with Landsbanki was close to being finalised.

He threatened to raise money from the bank's assets in the UK which the government has seized to help those whose accounts have been frozen for a week.

The UK Treasury said all UK savers' money was protected, even though the 100m loan would not cover the entire amount needed to compensate savers.

The issue caused a diplomatic row between the two countries' governments.

Compensation

Icesave customers in the UK are set to receive compensation for their lost savings, but part of this should come from the Icelandic authorities because the bank is not registered in the UK.

The first 20,000 euros of compensation should be provided by the Icelandic compensation scheme, with the rest coming from the UK's Financial Services Compensation Scheme.

But there has been some debate about how the Icelandic scheme will come up with this money, and how much business customers, charities or local authorities that saved with Landsbanki will get.

"Our authorities have set up an arrangement, agreed in principle, for an accelerated payout to depositors," Mr Darling told the Commons.

"We are also working with the Icelandic authorities to facilitate claims by UK charities and local authorities on their deposits held at these Icelandic banks."

The announcement came after the chancellor met the Icelandic finance minister in Washington on Sunday afternoon and pressed him for a swift resolution of the situation.

Initially, any rescue in Iceland was expected to concentrate on domestic customers first, prompting a strong reaction from the UK government, which seized the Landsbanki assets in the UK.


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