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Iceland unveils plans to capitalize new banks

ICELAND took a step towards clearing the debris of its financial meltdown today, unveiling a deal with creditors of its failed banks and plans to capitalize the new ones.

The government said it expected the capitalization to total about 270 billion Icelandic crowns (US$2.1 billion) but this would be reduced to about 200 billion if the old banks subscribed to equity stakes in two of the new banks -- Islandsbanki and New Kaupthing -- as planned.

Iceland's main commercial banks -- Glitnir, Landsbanki and Kaupthing -- collapsed in the space of a week last October owing more than US$60 billion to foreign lenders.

Restructuring the banking sector and repaying creditors, as well as stabilizing Iceland's currency, are seen as key to reviving an economy in the clutches of a deep recession and placating foreign lenders.

"Our agreements announced today are a major step forward in the re-establishment of a strong banking system," Icelandic Finance Minister Steingrimur Sigfusson said in a statement.

"They allow for the recapitalization of the banks, potentially at a significantly lower cost to the taxpayer than originally envisaged, and we believe will result in a fair and equitable outcome for all stakeholders."

Iceland agreed a US$10 billion rescue programme with the International Monetary Fund and some of its European neighbors last year. The money will mainly go toward building up the country's currency reserves.


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