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Iceland on Monday said it would guarantee all deposits with the country’s banks as it sought to reassure local savers, but said depositors in the UK would not be covered by the extension.Government officials said products issued in the UK, such as the Kaupthing Edge high interest account, were covered for up to £50,000 by UK regulation which is due introduced on Tuesday by the Financial Services Authority.The guarantee, delivered in a brief statement by the government, came after trading in shares in the country’s financial services institutions was suspended just as the stock exchange opened.The Icelandic Financial Supervisory Authority said it had imposed the suspensions of shares and other instruments in Kaupthing, Landsbanki and others because it wanted to “safeguard the equality of investors while awaiting an announcement”.Officials said there would be further news on measures to ease the banking crisis after a weekend of talks between the government, central bank, commercial banks, pension funds, employer organisations and unions. With the krona continuing to depreciate sharply, there were fresh calls for a move towards the adoption of the euro.The krona plunged on Monday against the euro as a bail-out plan to ease the plight of the stricken banking sector failed to emerge. The currency, which has lost more than a fifth of its value against the euro in the past month, fell another 23 per cent against the euro to below IKr200.Officials have issued apparently divergent views on whether and when a deal might be reached to bolster the central bank’s foreign exchange reserves and extend liquidity to the banks.Geir Haarde, prime minister, said late on Sunday night that no rescue plan would be forthcoming “at this time”. But other officials said on Monday that talks were continuing, with pension funds being urged to repatriate overseas assets and banks asked to help solve their own liquidity problems by selling foreign assets.Mr Haarde said: “The banks have agreed to decrease their activities abroad and sell assets.”Such a move by Kaupthing, the country’s leading bank, and Landsbanki, the second biggest, would be likely to have further repercussions in other countries, including the UK. Kaupthing’s commercial customers include Baugur, the retail investment company that owns Hamleys, and Robert Tchenguiz, the entrepreneur.In spite of the market turmoil, Kaupthing, the country’s biggest bank, remains well capitalised and is trying to quell doubts among savers in the UK and prevent a run on deposits.On Friday Kaupthing contacted some clients using contracts for difference – derivatives that allow investors to take a position on a stock without owning it outright – to request that they add to the cash component of the contract for difference (CFD).The bank has also attempted to reassure the foreign customers who put their savings in its high yielding accounts, saying that their money is guaranteed by the UK government up to £50,000.Mr Haarde on Sunday met banking executives, including Hreidar Mar Sigurdsson, Kaupthing chief executive, to discuss measures to ease the crisis, which led last week to the quasi-nationalisation of Glitnir, the country’s third largest bank.Bankers in Reykjavik want any additional funds made available to the central bank to passed on to them to substitute the drying up of wholesale funding, which has caused liquidity problems for banks around the world.In its most important and controversial intervention so far, the central bank last week agreed to spend €600m ($826m, £465m) on a 75 per cent stake in Glitnir.The decision – which the central bank said was the only option available – was criticised by Jón Ásgeir Jóhannesson, whose Stodir investment company is the lead shareholder in Glitnir, and Richard Portes, professor of economics at London Business School.The krona’s decline has exacerbated fears over Iceland’s ability to emerge from the current crisis and added to the problems facing its 320,000 citizens.A significant proportion of Icelanders have in the past decade turned to loans for cars and homes denominated in baskets of lower interest rate currencies such as the Japanese yen and Swiss franc. But the krona’s decline has left consumers stretched.
By Tom Braithwaite in Reykjavik
As in the days of Noah...
