Darling blamed as Iceland’s bank troubles spiral

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Kaupthing, which owned City investment bank Singer & Friedlander and UK internet bank Kaupthing Edge, said its board had resigned and handed control to the Icelandic Government.

The declaration came as the London stock market gave a half-hearted welcome to the Government's £500 billion bail-out plan for High Street banks and yesterday's emergency half-point cut in interest rates.

The FTSE 100 index of leading shares rose 67.62 points to 4434.31.

But in Iceland the crisis continued to spiral. Landsbanki was put into receivership earlier this week and Glitnir followed yesterday. Kaupthing had been offered a 500 million (£390.7 million) loan by the government, led by Prime Minister Geir Haarde.

In a dramatic statement today, Kaupthing chairman Sigurdur Einarsson said: "After the British Chancellor of the Exchequer stated that Iceland did not intend to honour its obligations to British depositors, the Financial Services Authority in the UK transferred Kaupthing Edge from the bank's subsidiary Kaupthing Singer & Friedlander which was placed in administration."

He said Darling's move effectively triggered a technical default on the parent bank and also blamed the UK authorities for a run on the Icelandic banks' internet operations in this country after rival Landsbanki banks' Icesave was frozen. Einarsson said: "After British depositors withdrew their deposits from Icesave, Landsbanki's deposit accounts in the UK, the Icelandic Financial Supervisory Authority assumed control of Landsbanki. In the wake of this news there was a significant increase in the outflow of deposits from Kaupthing Edge in the UK despite the fundamental difference between Kaupthing Edge and Icesave in that Kaupthing Edge was guaranteed by the British compensation scheme and Icesave by the Icelandic one."

Darling was forced yesterday to extend the £50,000 deposit guarantee to Icesave savers at the same time that he arranged the transfer of Kaupthing Edge to the Dutch insurance and banking giant ING.