Diplomatic strains as UK exposure to Icelandic banks mounts

by Gill Montia

Story link: Diplomatic strains as UK exposure to Icelandic banks mounts

Diplomatic relations between the UK and Iceland are under severe strain as a result of the global banking crisis.

Prime Minister Gordon Brown has accused the Icelandic authorities of acting illegally by refusing to honour around £20 billion of British investments in its banks.

The money belongs to individual savers, local authorities, town halls, police authorities, charities and commercial investors.

The assets of Icelandic companies in the UK have been frozen in response to the Icelandic Government taking control of the country’s three largest banks, Kaupthing, Landsbanki and Glitnir, during last week and this.

While private savers have been reassured by Chancellor of the Exchequer Alistair Darling that they will receive compensation, even if individual deposits exceed the £50,000 currently covered by the Financial Services Guarantee Scheme, local councils, charities and commerce may have to take up their losses.

Over 100 UK local authorities are reported to have deposited up to £1 billion in Icelandic banks and questions are already being asked as to why investment experts in the public sector were not more aware of the vulnerability of Icelandic institutions to the credit crisis, given their level of dependence on borrowing.

The OMX Nordic Exchange Iceland is now closed until Monday.