Iceland risks plunging into national bankruptcy, Prime Minister Geir Haarde warned Monday, as a mounting financial crisis and a 30% dive in the krona forced the government to take emergency action. The ruling alliance and opposition parties approved legislation that gives the state sweeping powers over Iceland’s troubled banks including the option of nationalising them and sacking executives. Haarde said in a public address that the financial regulator would have authority to dictate a bank’s operations and could even force it to merge or declare bankruptcy. Days of emergency talks have failed to produce a comprehensive bail-out plan to ease the banking sector’s plight. The Icelandic krona fell to its lowest level against the euro and trading across the Icelandic financial sector was suspended as the government tried to buy time to ease the country’s banking crisis. As the currency plummeted, analysts said the country faced a balance of payments crisis. The new bill will allow the government to take over housing loans held by the banks and put them in a government housing fund. In addition, pension funds have been urged to repatriate overseas assets and banks have been asked to sell foreign assets.

This entry was posted by Gwen Robinson on Tuesday, October 7th, 2008 at 5:40 and is filed under Capital markets. Tagged with iceland. Edit this entry.