UK loans £100m to Icelandic bank

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The loan, secured against assets of Landsbanki frozen by the British Government, is designed to ensure the institution can continue to operate in the short term.

Chancellor Alistair Darling announced the move in the Commons after meeting with the Icelandic Finance Minister in Washington at the weekend.

An "accelerated payout" had been agreed in principle for individual savers, Mr Darling told MPs, but work continues to "facilitate claims by UK charities and local authorities on their deposits held at these Icelandic banks".

Town halls and charity bosses fear hundreds of millions of pounds of taxpayers' cash and donations could be lost as a result of the collapse.

"In addition, the Bank of England is providing a short term secured loan of up to £100 million to Landsbanki to help maximise the returns to UK creditors," Mr Darling said.

Explaining the loan, a Treasury spokesman said: "My understanding is that Landsbanki has no working capital in it essentially. In order to provide the normal functions it would to its UK creditors, we are providing working capital to that business.

"That £100 million is secured against the assets we have frozen. If we weren't to do that there might be problems for certain businesses and charities that they would not be able to access the capital that they would need."

At an earlier press conference, Mr Darling urged the Icelandic government to face up to the scale of the problems in its financial sector and take "far-reaching action" to deal with them.

"I met the Icelandic finance minister in Washington on Sunday afternoon and I said to him that it is imperative that this situation is resolved as quickly as possible," he said.