Shellshocked Iceland takes control of biggest bank

Iceland took control on Thursday of its biggest bank, Kaupthing, to try to shore up a teetering banking system.

The state has now seized control of three of the nation's major banks after Landsbanki and Glitnir were taken over earlier this week.

At the center of a financial hurricane which has claimed several of the world's biggest banks, Iceland's prime minister has warned of the risk of national bankruptcy.

The central bank has tried then abandoned attempts to prop up its battered currency.

Iceland's Financial Supervisory Authority (FME) said on its website that Kaupthing's domestic deposits were fully guaranteed and that all its domestic branches, call centers, cash machines and Internet operations would be open for business as usual. "The Icelandic Financial Supervisory Authority has under powers granted by the Icelandic Parliament proceeded to take control of Kaupthing," the authority said.

"The action taken by the FME is a necessary first step in achieving the objectives of the Icelandic Government and Parliament to ensure the continued orderly operation of domestic banking and the safety of domestic deposits."

Iceland adopted sweeping powers late on Monday that gave the state the ability to dictate banking operations and allow it to push through mergers or even force a bank to declare bankruptcy.

The government swiftly used them to dismiss the board of directors of Landsbanki and put it into receivership. Glitnir, and now Kaupthing, rapidly followed into the state's clutches.

Home to just 300,000 people in the North Atlantic, Iceland epitomized the global credit boom that turned to bust 15 months ago. Its banks expanded dramatically overseas, investors took large positions in its high-yielding currency and foreign money poured into local projects.