Despite efforts to keep its largest national bank private, the embattled country of Iceland was forced Thursday to nationalize Kaupthing. The small, Nordic nation has been one of the countries hardest hit by the credit crunch, and its government has cautioned that it is teetering on the edge of bankruptcy.
Adding to the menace of the banking crisis is the decision by the country's stock exchange, the OMX Nordic Exchange Iceland, to remain closed until Monday due to "unusual market conditions."
The country is caught in the grip of the credit crunch following years of heavily leveraging itself during the credit boom. The de-leveraging that is currently taking place has placed the entire country on the verge of financial collapse, with Prime Minister Geir H. Haarde warning that the banking turmoil has placed his country at risk of "national bankruptcy."
Tuesday, Iceland nationalized its second largest bank, Landsbanki. Last week, the nation's third largest bank, Glitnir bank, was nationalized. The nationalization of Kaupthing comes despite a 500 million euro loan to the bank earlier in the week.
There is a sense of calm in Europe this morning following a move by the United Kingdom to partially nationalize its banks. However, hundreds of thousands of people in Europe have accounts with Icelandic banks, and the Icelandic government has refused to guarantee the international deposits.
Iceland's Financial Services Authority has control of all three of the country's major banks, calling the trio of nationalizations necessary in order to ensure "continued orderly operation of domestic banking and the safety of domestic deposits."
Domestic deposits are guaranteed, however, and the Icelandic government sprinted earlier in the week to separate Landsbanki into domestic assets and international assets, with the domestic titled "New Landsbanki" and owned by the government.
"The decision means that the new bank takes over all the bank's deposits in Iceland, and also the bulk of the bank's assets that relate to its Icelandic operations, such as loans and other claims," the Financial Services Authority said in a statement.
"The decision ensures continued banking operations for Icelandic families and businesses," it added.
As a result, those hundreds of thousands of Europeans - many in the United Kingdom - with money in the international Landsbanki are at the risk of losing their deposits. In an attempt to assist its citizens who made deposits in Landsbanki, Britain is working to pressure Iceland into insuring the international deposits.
British Prime Minister Gordon Brown threatened to sue Iceland should the country fail to repay the deposits of the 300,000 British citizens whose accounts were with the international Icelandic bank.
Responding Wednesday, Iceland's Prime Minister Haarde said that the two countries were working diplomatically towards a "mutually satisfactory solution."
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May 01, 2026 15:54 ET Central banks dominated the economics news flow this week with almost all major ones announcing their latest policy decisions and many boosted expectations for a rate hike in June. In other news, several countries released the preliminary data for first quarter economic growth. In the U.S., comments by Fed Chair Jerome Powell were also in focus as his term ends this month.