Trading in the shares of all Iceland's banks and financial institutions was suspended on the Nordic Exchange today ahead of a long-awaited bailout plan from the government.

The Icelandic krona fell 7% to a record low of 174 against the euro.

Prime Minister Geir Haarde had been looking at a variety of solutions including the potential merger of the main three banks: Kaupthing, ­Landsbanki and Glitnir, which was partially nationalised last week.

Kaupthing and Landsbanki both run internet savings accounts — Kaupthing Edge and Icesave — in the UK. Their ­competitive rates have attracted thousands of British depositors.

The Icelandic government today said it is drafting a plan to deal with the financial crisis engulfing the country as banks agreed to sell off some of their foreign assets.

Business Affairs Minister Bjorgvin Sigurdsson told state radio a draft of the plan is “well on its way”. It is expected to see further sell-offs of foreign-owned assets including Singer & Friedlander, Kaupthing's City investment bank, which has already seen potential buyers circling. Last week Landsbanki sold stockbroker Teather & Greenwood and corporate finance boutique Bridgewell.

The Icelandic banks are big lenders to British entrepreneurs ranging from Robert Tchenguiz to celebrity chef ­Gordon Ramsay.

Kaupthing is also one of the prime movers behind Baugur, the Icelandic retail investor that owns Hamleys, Karen Millen, Debenhams and Oasis in the UK High Street.

Baugur chief executive Gunnar Sigurdsson admitted that any enforced merger of Icelandic banks may affect the firm's loans but denied any exposure to the wider problems in the country's economy.

He said: “We are worried for our family and friends in Iceland, but not for Baugur. While it is true we borrow from the Icelandic banks, our UK operations are performing strongly.”

Haarde held talks all yesterday with bankers and pension-fund officials. One solution being discussed was that the ­country's pension funds, which have assets of ¤12 billion (£9.3 billion), could be called upon to bail out the banks.

Iceland has a population of 300,000 and its economy is worth around $20 billion (£11.4 billion) a year, while the three main banks hold assets worth more than 10 times that.

But the economy has been thrown into turmoil with the krona ­plummeting, imports dropping and inflation soaring.