Banking crisis hits Iceland

Iceland said Russia had offered it an emergency loan of four billion euros on Tuesday and Britain considered injecting capital into its banks to rescue victims of the global financial crisis.

Australia responded to the growing crisis by cutting its interest rates by 100 basis points, increasing the pressure on Western governments and central banks to come up with a coordinated response. Iceland, a country of 300,000 in the North Atlantic, is battling to stave off national bankruptcy after its banks took on massive debts in expanding overseas.

The country’s market authority took control of Landsbanki using sweeping new powers introduced overnight. Russia would provide a loan of 4 billion euros ($5.44 billion), the Icelandic central bank said.

However, Russia’s deputy finance minister Dmitry Pankin said Russia had not made any decision on lending money to Iceland. The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets, pushing industrialised countries closer to recession. Conditions remained poor for lending between banks.