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Iceland suspends stock trading, creates new bank

(Agencies)
Updated: 2008-10-09 23:02

REYKJAVIK- Iceland suspended trading on its stock exchange for two days and took control of the country's largest bank - the third to be placed under its protective umbrella - on Thursday as it grappled with a banking crisis that is threatening to engulf the entire country.

Iceland's Prime Minister Geir H. Haarde, right, arrives for a press conference in Reykjavik, Iceland, on Wednesday Oct. 8, 2008. [Agencies]

The Nordic nation's government also used sweeping new emergency powers to create a new bank that will take over the bulk of the domestic operations of another one of its collapsed banks.

The country is struggling to get a grip on the collapse of its top-heavy banking system, a situation that Prime Minister Geir H. Haarde has warned is putting Iceland at risk of "national bankruptcy."

Government officials announced that President Olafur Ragnar Grimsson was hospitalized Monday and Tuesday after undergoing coronary angioplasty and coronary dilation. Grimsson has been advised not to return to work for a a few days.

A stock market boom in the mid-1990s supported the rapid growth of Iceland's banking sector, which came to dwarf the rest of the economy and provided financing for deals that ranged across Europe and conquered swaths of the British economy, from fashion retailers to top soccer teams..

The strategy gave Iceland one of the world's highest per-capita incomes, but when liquidity markets dried up around the world, the banks struggled to refinance those heavy debts.

Now Icelanders are watching helplessly as their economy implodes, causing ripples throughout Europe, where tens of thousands of people have accounts with subsidiaries of the Icelandic banks..

The OMX Nordic Exchange Iceland said that equity trading would remain halted until Monday because of "unusual market conditions."

The government's decision to take control of Kaupthing, the country's leading bank, which has assets and debts across the continent, means that the Financial Services Authority now has control of all three of the country's major banks. The other two, Landsbanki and Glitnir, are in receivership.

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