Page last updated at 09:08 GMT, Monday, 20 July 2009 10:08 UK

Iceland in move to bolster banks

The headquarters of the Landsbanki bank in Reykjavik
Iceland nationalised its three main banks during the financial crisis

Iceland has announced a 270bn-crown (£1.3bn) plan to get its banking system back on its feet after it was forced to rescue its three main banks last year.

The government will capitalise the three new banks it is creating from the failed ones through a bond issue.

Iceland's three main commercial banks, Glitnir, Landsbanki and Kaupthing, all collapsed within a week last October, owing $60bn to foreign lenders.

The collapse jeopardised the savings of 300,000 savers in Britain.

Under the plan, the government will also offer controlling stakes in Islandsbanki (formerly Glitnir) and New Kaupthing to the old banks' existing shareholders.

The government will still retain a stake in the banks.

A similar plan for Landsbanki is still being discussed.

"Not only do today's announcements provide a firm basis for further progress, they also benefit customers of the new banks and the Icelandic economy in general," said finance minister Steingrimur Sigfusson.

Measures

The deal is the latest in a series of measures that the country hopes will restore trust in its banking system and stabilise the broader economy.

Last week, the Icelandic parliament voted to start negotiations to join the European Union.

Iceland has also agreed to repay British and Dutch government money paid out to depositors following the collapse of the savings bank Icesave, part of Landsbanki.

The UK loaned Iceland £2.3bn last year to reimburse UK savers with Icesave, after the Icelandic banking system was nationalised.

The incident sparked tensions between London and Reykjavik at the time.



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