Landsbanki taken into receivership in a move to protect savers

Iceland's second largest bank Landsbanki, was nationalised by its government today as the country made use of new powers allowing it to take control of public companies in the financial sector.

The Icelandic Financial Supervisory Authority (IFSA) said that it would take control of the bank to secure the ongoing commercial banking system in Iceland. The emergency legislation was passed in Parliament on Monday night, giving the IFSA permission to dictate banks' operations, such as forcing them sell overseas assets or merge with rivals.

Iceland is also currently negotiating a €4 billion loan from Russia to aid the nation's finances in their time of financial need.

The Icelandic prime minister Geir Haarde, said last night."We're taking the interest of the population as a whole ahead of the interest of the banks and the shareholders. I can foresee very easily that we will have some rationalisation in the banking system. I think there's a need for that."

The actions came a day after the trading of bank shares was halted, the value of the Icelandic krona fell a quarter against the Euro, so the government hurried through the emergency legislation last night giving them new powers to deal with the financial turmoil.

Landsbanki offers products through Icesave and several of products including mortgages and savings accounts through Heritable Bank.

The move, has caused some anxiety among investors with Landsbanki's UK counterpart Icesave who stopped depositors from withdrawing their money on Tuesday. However they do have the cover of a UK guarantee of up to £50,000, which came into force on Tuesday.

Accounts are much safer with Kaupthing Edge as they are a registered UK bank and are therefore covered completely by the FSCS, with no top-up compensation as used by Icesave that is dependant on the Icelandic government. This means that each individuals savings accounts will be covered for up to £50,000 guaranteed.

The depositor protection arrangements in Iceland and the UK states that the Icelandic authorities are liable for the first 20,887 Euros (£16,300) of compensation provided in the event of the bank collapsing. The UK's FCSC will cover the remaining amount, which has increased by £15,000 to £50,000 per person, as of today.

The Financial Services Authority commented: "If, as expected, the Icelandic authorities put the firm into insolvency proceedings this would trigger a default under the FSCS, In this case, savers with Icesave could make a claim to get their money back,"

Landsbanki have announced that they have gone into receivership, not liquidation, and that the Icelandic Financial Services Authority has appointed a receivership committee.

"Work has already begun on the restructuring of the operations of Landsbanki," "If Icesave were declared insolvent, UK customers would not have to make two separate claims and that it would probably handle all UK claims on one form." said a spokesman for the FSCS

"We are working with the Icelandic authorities to confirm the procedure. We are gearing up to be ready to do whatever we can in order to get compensation back to UK savers as quickly as possible," he added.

Icesave has around 350,000 savers in the UK and Holland, making up approximately £4.5billion.

The Icesave website homepage is not currently providing the usual level of interaction, replacing the normal window is a message that reads:

"We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts. We apologise for any inconvenience this may cause our customers. We hope to provide you with more information shortly."