Landsbanki, Iceland’s second largest bank, has been nationalised. The move is the latest chapter in the saga surrounding the collapse of Iceland’s economy and subsequent speculation surrounding its impact on UK retailers owned or backed by Icelandic banks or Icelandic investor Baugur.

The Icelandic Financial Supervisory Authority (IFSA) said in a statement that it had proceeded “to take control of Landsbanki to ensure continued commercial bank operations in Iceland” under new legislation passed by Iceland's parliament last night.

Landsbanki was put in to receivership and its board of directors dismissed. The bank will remain open and run as normal and the regulator said that “domestic deposits” were fully guaranteed.

This morning, the accounts of 350,000 customers in the UK and Netherlands using Landsbanki’s internet savings account Icesave, were frozen. Deposits of up to£50,000 per person are covered from today by the UK.

The nationalisation follows the passing of emergency legislation in Iceland's parliament last night allowing the IFSA the right to use new powers to seize control of public companies to stabilise the financial system.

Icelandic bank Kaupthing, which has 20 per cent in fashion group Mosaic and provides financial backing to Baugur, is now the only Icelandic bank with substantial overseas operations to remain independent. It is believed that Kaupthing may be forced to sell off its overseas assets and is taking state loans.

The news follows the nationalisation of Iceland’s third largest bank Glitnir, last week.

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