Iceland takes over second largest bank

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Landsbanki headquarters. Photo: EFE

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Iceland took over its second largest bank, propped up a battered currency and said on Tuesday it hoped Russia would lend 4 billion euros ($5.44 billion) to help tackle a financial crisis threatening to overwhelm it.

Clouding a rapidly-escalating emergency, Russian deputy finance minister Dmitry Pankin told Reuters no decision had been taken to lend money.

But Iceland's prime minister, Geir Haarde, said government officials would go to Moscow to discuss the terms of the loan, which would bolster the country's foreign reserves. He said Iceland would not default on its sovereign debt.

"People from our side will be going to Russia today or early tomorrow morning to discuss the exact terms," Haarde told a news conference. "With this, like everything else, nothing is certain until it's certain."

Home to just 300,000 people, Iceland used emergency powers rushed through on Monday to dismiss the board of directors of Landsbanki and put the bank in receivership.

That tipped the country's crown currency into a 35 percent nosedive but it bounced back after the central bank said Moscow had agreed to step in.

An International Monetary Fund spokesman said an IMF staff team was in Iceland on a fact-finding mission and Norway said it was ready to discuss help but had heard nothing from Reykjavik.

So volatile was the currency that Iceland's central bank was forced to introduce a currency peg at a value of 131 per euro. It was last trading around 202.

Commerce and banking minister Bjorgvin Sigurdsson said Landsbanki would be open and run as normal while changes were taking place. Iceland's Financial Supervisory Authority (IFSA)had replaced the bank's board with its own people.

"Domestic deposits are fully guaranteed, as declared by the government. Landsbanki's domestic branches, call centres, cash machines and internet operations will be open for business as usual," the IFSA said in a statement.

"The objective of the IFSA's action is to guarantee a functioning domestic banking system."