More than 200,000 British investors in the Icelandic internet bank Icesave were today unable to make any deposits or withdrawals from their accounts.
Customers hoping to access their account were met with a message on the bank’s website this morning which said that Icesave was not ‘currently processing any deposits or withdrawal requests’.
There was no explanation for the move but it comes as Iceland’s government grappled with a major crisis in its banking sector.
This morning Iceland used emergency powers adopted on Monday to dismiss the board of directors of Landsbanki, the bank that owns Icesave, and put the bank into receivership.
But heads of Landsbanki last night admitted that Icesave’s UK-based savers would not get the same protection for their £4.5 billion investments should it go bust.
Instead, from today their savings are protected to a maximum of £50,000 per head, the same as customers of UK banks.
Of this, they would have to claim the first £16,000 from the Icelandic government, with the UK compensation scheme topping up the rest.
Even so, there are concerns that the tiny Icelandic economy would never be able to refund billions.
The move from the Reykjavik government followed a day of frantic activity which saw financial shares in the country suspended and the currency plummet by a third.
Businesses ranging from Hamleys to French Connection have all been bought up or backed by Icelandic firms in a remarkable spending spree over the past decade.
As the Icelandic government desperately wrestles with the biggest financial crisis in the country’s history, tens of thousands of employees wait anxiously to see if their jobs are secure.
So far one Icelandic bank – Glitnir, the country’s third biggest – has had to be rescued and five others are under the close supervision of the government. About 300,000 British savers have deposits with Icelandic banks such as Kaupthing and Landsbanki.
Today the Icelandic authorities prepared to take unprecedented action after emergency legislation was passed late last night. With a population of just 300,000, a national economy of £11 billion but foreign debts of almost £80 billion, the Scandinavian island is in grave danger of national insolvency.
In an address to the nation, prime minister Geir Haarde said the country’s top financial-regulator will have wide-ranging authority
In an address to the Reykjavik parliament, the prime minister raised the spectre of a complete financial collapse if the Bill had not been agreed.
Yesterday the Icelandic crown had shed 30 per cent of its value in a day to a record low exchange rate of 230 to the euro. In the wake of the currency fall, inflation in the country, which is heavily dependent on imports, is set to rocket.