LONDON (Thomson Financial) - The Treasury said it will protect the retail depositors in two Icelandic-owned banks: Icesave, a UK-based branch of Landsbanki, and Heritable, a UK-based banking unit of Landsbanki.
'Savers' money is safe and secure', the Treasury said in a statement.
The Treasury said the Chancellor of the Exchequer Alistair Darling has taken this action, acting on the advice of the Bank of England and the Financial Services Authority (FSA), 'to ensure the stability of the UK financial system'.
The Treasury said: 'The UK authorities expect that Landsbanki will soon be declared in default. Should that occur, the Chancellor has put in place arrangements to ensure that no retail depositor will lose any money as a result of the closure of Icesave.'
The Treasury said it and the Financial Services Compensation Scheme are working with the Icelandic authorities and their Deposit Insurance Scheme to ensure that depositors are paid back as quickly as possible.
The Treasury added that arrangements are being put in place to ensure that all ISA customers of Icesave will continue to benefit from the tax-free status of their accounts.
The Chancellor has on Wednesday taken steps to freeze the assets of Landsbanki in the UK until the position with respect to the future of the firm and UK creditors becomes clearer, the Treasury said.
With regard to Heritable, the Treasury said this banking unit is regulated by the FSA, and Heritable's retail deposit business has been transferred to ING Direct, a wholly owned subsidiary of the ING Group. ING Direct is working rapidly to ensure that it is business as normal for all customers, the Treasury said.
This action has been taken because the FSA has concluded that Heritable is likely to be unable to continue to meet its obligations to deposits and it is therefore in default for the purposes of the Financial Services Compensation Scheme. The Treasury said it has used the Banking (Special Provisions) Act 2008 to ensure a resolution that preserves financial stability and provides protection and continuity of business for depositors.
The remainder of Heritable's business has been put into administration, the Treasury said. It added that any retail depositors eligible to claim under the Financial Services Compensation Scheme whose business has not been transferred to ING Direct will be paid in full through the Financial Services Compensation Scheme.
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