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Alistair Darling confirmed yesterday that the government is to provide £800m of compensation to people who lost money in the Icelandic bank Landsbanki.
The announcement came a month after Darling promised 230,000 private British savers with Icelandic accounts that their money would be safe despite the collapse of Landsbanki, the country's second-largest bank, which ran the internet-only institution Icesave.
"On 8 October 2008, I announced to parliament that the government would ensure that no depositor in Icesave, the internet product made available by the UK branch of the Icelandic bank Landsbanki, would lose any money as a result of the closure of Icesave. I have today laid a Treasury minute to explain several contingent liabilities into which the government has entered in order to give effect to part of this commitment," he said in a written parliamentary statement.
A Treasury spokesman said £800m would be paid to the Financial Services Compensation Scheme (FSCS) to ensure it could meet its obligations above the £50,000 of savings usually protected for any individual who has money on deposit in a UK bank. Until now, the Bank of England has provided loans to enable the FSCS to pay out, but today's announcement will refinance this facility.
Darling's pledge to those with money in Landsbanki - which held £4.5bn in British savings - went beyond the Treasury guarantee on the first £50,000 of savings.
The FSCS hopes to have paid most claims this month. It sent out emails to Icesave customers this week setting out how the compensation would be paid.
The Treasury said talks with Iceland over recovering savings were "ongoing".
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