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    Iceland government nationalizes biggest bank

    AFP
    09.10.2008 - 10:44 | Son Güncelleme: 09.10.2008 - 11:11

    Iceland’s government has nationalized the country’s biggest bank, Kaupthing, financial authorities said on Thursday after the two other biggest banks were nationalized earlier this week.

    "Based on new legislation, the Icelandic Financial Supervisory Authority (FME) proceeds to take control of Kaupthing to ensure continued commercial bank operations in Iceland," the authority said in a statement as Iceland’s economy verges on collapse. 

     

    Iceland's parliament on Monday adopted emergency laws to save the financial sector and ward off national bankruptcy, allowing the government to take control of all banks and financial institutions, take over assets, merge institutions and force institutions to declare bankruptcy.

     

    "Domestic deposits are fully guaranteed," the Financial Supervisory Authority said, adding that the banks domestic branches, call centers, cash machines (ATMs) and internet operations would be open for business as usual.

     

    The move was aimed at "guaranteeing a functioning domestic banking system," it said.

     

    The government nationalized Iceland’s second- and third-biggest banks Landsbanki and Glitnir earlier this week.

     

    But it announced Wednesday it would no longer continue efforts to shore up its currency, a day after it tried to peg the krona to the euro. The krona has lost half its value against the euro since the beginning of the year.

     

    The Icelandic banks have meanwhile begun selling off foreign subsidiaries in a bid to remain afloat.

     

    The Atlantic nation’s economy is largely based on its financial sector, which is eight or nine times the country’s gross domestic product (GDP).

     

    In 2007, Iceland’s GDP was 1.29 trillion kronur (8.25 billion euros, $11.7 billion). The current crisis therefore threatens the country’s entire economy.

     

    The prime minister, who has given numerous speeches in recent days in a bid to reassure Icelanders and investors, said Wednesday the islands economic recovery would take "years."

     

    However, he said that "were optimistic, we have a positive attitude," and added that the country had plentiful resources "on land and sea," a reference to its fishing and aluminum smelting industries.

     

    Iceland has been seeking financial support from abroad but with little apparent success. It will begin negotiations next week with Moscow for a loan estimated at four billion euros.

     

    Photo: Reuters

     

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