After Takeover Of Two Largest Banks, Iceland Suspends Equities Trading Until Oct. 31

Reykjavik, Iceland (AHN) - Iceland's Financial Services Administration seized Kaupthing Bank on Thursday after the country's largest financial institution collapsed due to its massive foreign debt.

The takeover of Kaupthing followed the FSA's bailout of Iceland's second largest bank Landsbanki and the government's 100 percent guarantee of domestic deposits. The FSA, in its website, said it took over Kaupthing Bank to provide the county a functioning domestic banking system.

Because of the global credit crunch, the debts of Iceland's banks had grown to $61 billion, 12 times the size of the nation's economy. Their collapse had affected 420,000 British and Dutch depositors and universities, hospitals, councils and the London police force whose assets were frozen.

Thomas Haugaard Jensen, economist at the Svenska Handelsbanken in Copenhagen, said, quoted by Bloomberg, "This looks like a total collapse... It'll wake several years before the economy can start to return to growth."

Because of the unusual market conditions, Iceland's stock exchange suspended all trading in the country's equity markets until Oct. 13.

Over 20 English and Welsh councils have deposits in Landsbanki. While British Chancellor Alistair Darling had promised guarantee on all individual deposits in the collapsed Icelandic bank, he did not extend the same cover to local councils.

The British government advised Britons with money in Landsbanki to first secure $28,235 (16,240 pound) of their deposit from Iceland's deposit insurer, then the balance up to $86,784 (50,000 pound) will be taken care by the British deposit insurance scheme.