Iceland's financial crisis intensified today when the state of its banks turned out to be even worse than thought.

The Icelandic government scrapped plans to nationalise Glitnir Bank and instead shoved it into receivership. The central bank said the “difficulties of the bank were much greater” than the authorities had thought.

The Financial Supervisory Authority seized control of Glitnir's assets, Iceland's third-largest lender, a day after it took charge of Landsbanki, the second-biggest.

Glitnir will sell some of its overseas operations in an overhaul led by chief executive Larus Welding. The government had earlier said it would buy a 75% stake in Glitnir to keep it afloat.

Kaupthing, the country's biggest bank, is the subject of a £350 million government bailout.
Its UK division has been put into administration to protect savers in Kaupthing Singer & Friedlander (KS&F), its British arm.

Britain's Financial Services Authority concluded that KS&F “is in default for the purposes of the Financial Services Compensation Scheme”.
The status of savings made by UK customers into Iceland's banks was not clear at first.

Chancellor Alistair Darling said in a TV interview: “The Icelandic government, believe it or not, have told me yesterday they have no intention of honouring their obligations here.”
Britain plans to sue Iceland over deposits belonging to 300,000 UK account holders with the Icesave internet bank after its parent, Landsbanki, went into receivership.