U.K. Compensates Citizens With Deposits In Icelandic Banks

November 6, 2008 11:54 a.m. EST

London, England (AHN) - British depositors who have money at the collapsed Icelandic bank Landsbanki will be compensated by the U.K. government. Britain set aside $1.27 billion (800 million euro) for that purpose.

Chancellor of the Exchequer Alistair Darling announced the pay-off Thursday a month after he promised 230,000 Britons with money in Icesave, an internet-only institution owned by Landsbanki.

The $1.27 billion will be handled by the Financial Services Compensation Scheme, which covers deposits in failed British banks beyond $80,000 (50,000 pound).

Relations between the U.K. and Iceland became cold after the Icelandic Prime Minister Geir Haarde said it will not compensate foreign investors in Icelandic banks. In retaliation, British Prime Minister Gordon Brown ordered the freezing of all assets of Icelandic companies in Britain.

Iceland is blaming U.K. for its financial crisis due to the use of a 2001 British anti-terrorism law to freeze the British assets of a collapsing Icelandic bank, which made it appear that Iceland is a terrorist state, on the same category as Sudan, North Korea and the al Qaeda.

Jon Danielsson, economist at the London School of Economics, told the International Herald Tribune, "The immediate effect was to trigger an almost complete freeze on any banking transaction between Iceland and abroad... When you're labeled a terrorist, nobody does business with you."