Iceland has halted share trade in its hard-hit banks and the island's weakened currency slid further on today, as the government scrambled to avert a full-fledged market meltdown sparked by the global crisis.
The island-nation's top financial regulator called for trade to be halted in all of the main banks and financial firms. Kaupthing, Iceland's biggest bank, had said on Sunday it was in healthy shape.
The Icelandic crown's freefall showed no sign of abating as the currency lost another 7 per cent after steep declines last week. The currency slide exacerbates an already precarious situation for local banks as it makes their large foreign debts more expensive to finance.
The country's prime minster told state television late yesterday night the country's authorities had not agreed any specific crisis measures "at this time".
He said banks had agreed to sell off overseas assets and the government would meet with pension funds today.
But Iceland's banking minister told state radio today that the drafting of a plan to help the financial system was "well under way".
Commerce and Banking Minister Bjorgvin Sigurdsson said it was impossible to give further information.
Iceland, hoping to bring home desperately needed foreign currency, has asked pension funds to repatriate cash. The overseas market in the crown, at record lows against the euro, has dried up and banks outside the island were quoting rates for the currency on Friday some 7-8 per cent lower than local rates.
Icelandic state radio reported over the weekend that the country's association of pension funds had agreed to transfer 200 billion Icelandic crowns ($1.8 billion) to the state.
The transfer will have to be approved by member pension funds and the money must be guaranteed by the state.
Another option for cash would be to activate a Nordic swap facility that was set up earlier this year. A spokesman for Sweden's central bank said the Riksbank had not been asked by Iceland about using the swap. Central banks in Norway and Denmark declined to comment.
Iceland's financial system has been rocked by the international credit crisis and the state has already been forced to rescue one bank - Glitnir.
Credit agencies have cut Iceland's sovereign debt rating on worries about the banking system.
Iceland's financial firms have been frozen out of credit markets over concerns they took on too much debt during a rapid overseas expansion during the last few years.
Prime Minister Haarde said the banks would now shrink foreign involvement.