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UPDATE 1-Iceland moves to nationalise Islandsbanki, on way to lifting capital controls
October 20, 2015 / 10:19 AM / 2 years ago

UPDATE 1-Iceland moves to nationalise Islandsbanki, on way to lifting capital controls

(Adds details on capital controls, context)

COPENHAGEN, Oct 20 (Reuters) - Iceland moved a step closer to lifting capital controls imposed following its 2008 financial meltdown, with creditors of one failed bank on Tuesday proposing the nationalisation of the successor bank in which they hold a majority stake.

The process is part of a settlement agreed between the creditors of three institutions that crashed in 2008 and the government and is a necessary step before money can be allowed again to flow out of the country.

Iceland is concerned that lifting controls could prompt a massive outflow of capital, including any debts the creditors have recovered, and thus destabilise the Icelandic crown currency.

Among the measures agreed to ensure that did not happen was a demand that creditors of the failed banks either pay a 39 percent “exit” tax on money they may take out in the future or that they make a “stability contribution”.

On Tuesday, the finance ministry said that by way of a stability contribution - effectively a cushion against any future outflow of money, creditors of Glitnir proposed handing to the government their 95 percent stake in Islandsbanki, created out of the collapsed remnants of Glitnir.

“Should the authorities agree to the proposals, the state would become the full owner of the bank,” a spokeswoman with the ministry said. Islandsbanki had equity of 185 billion Icelandic crowns ($1.48 billion), the ministry said.

A task force created by the ministry and the central bank to oversee the lifting of controls believes the proposals “conform to the stability conditions”, the finance ministry said, indicating that the authorities would agree to the proposal.

Creditors in Glitnir, Kaupthing and Landsbanki submitted proposals on how they would make the stability contribution in June. The finance ministry has yet to announce the results of its consultations with the other two groups of creditors. (Reporting by Sabina Zawadzki; Editing by Hugh Lawson)

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