The Bank of England will lend £100m to Landsbanki to help the collapsed and newly nationalised Icelandic bank repay its UK creditors, the chancellor, Alistair Darling, announced yesterday.
In a statement to MPs, he said he had told the Icelandic finance minister that both countries needed to work together to help the creditors of failed Icelandic banks, who include many British savers, local authorities and charities.
"Our authorities have set up an arrangement, agreed in principle, for an accelerated payout to depositors," he said. "We are also working with the Icelandic authorities to facilitate claims by UK charities and local authorities on their deposits held at these Icelandic banks.
"In addition, the Bank of England is today providing a short term secured loan of up to £100m to Landsbanki to help maximise the returns to UK creditors."
Around 300,000 British depositors were left without their money when Landsbanki's online banking subsidiary, Icesave, collapsed.
Last week, Iceland's government stepped in to take control of three of the country's biggest banks, freezing assets including £4.5bn belonging to British savers.
Yesterday's loan offer appears to signal a softening of the British government's tactics. Gordon Brown originally branded Iceland's refusal to guarantee British savings as "totally unacceptable and illegal", while the government used the Anti-Terrorism, Crime and Security Act to seize an estimated £4bn in Icelandic resources.
But there was increasing concern about the amount of British public and charitable-sector money deposited in Iceland's stricken banks. As much as £1bn of local council money is thought to be at stake, with British charities estimating their exposure at around £60m. "There are more than 50 charities that have deposits there," said Stephen Bubb, chief executive of the Association of Chief Executives of Voluntary Organisations.
As Iceland's stock exchange remained closed for a third consecutive day, speculation continued yesterday that the British retail magnate Sir Philip Green was close to relieving the stricken Icelandic investment group Baugur of its interests in some of the UK's best-known high-street brands including House of Fraser, Hamley's,
Mappin & Webb, Oasis, Warehouse and Whistles. The Topshop owner visited Iceland at the weekend.
Both Hamley's and House of Fraser emphasised their independence yesterday. Hamley's stressed that it was "a standalone, independent British company" and "not a subsidiary of Baugur".