Netherlands, Iceland reach deal on deposits

REYKJAVIK, Iceland -- The Dutch and Icelandic governments reached an agreement Saturday over how to compensate Dutch depositors at one of Iceland's troubled banks.

Under the deal, the Icelandic government will compensate each Dutch depositor up to a maximum of 20,887 euros ($28,281.60). The Netherlands is offering a loan to Iceland to make that possible.

The money will go to those holding accounts with IceSave, an online company that was part of Landsbanki, an Icelandic bank recently put into receivership.

A deal also may be near between Iceland and Britain, whose governments have been feuding. British Prime Minister Gordon Brown recently invoked powers under an anti-terrorism law to freeze the British assets of Landsbanki.

The move was called a "completely unfriendly act" by Icelandic Prime Minister Geir Haarde.

Government officials from both countries held talks Saturday in Reykjavik. In a joint statement, they said, "Significant progress was made on retail depositors of Icesave with arrangements agreed in principle for an accelerated payout to depositors." No further details were given.

The crisis started less than a week ago, when Landsbanki declared insolvency and was taken over by the Icelandic government. The bank is the parent company of Icesave, which had offered savings accounts in the Netherlands since May and in the United Kingdom since 2006.

Iceland's economy is struggling more than other under the global credit crunch. Deregulation and a 1990s stock market boom fueled the rapid growth of Iceland's banking sector, which came to dwarf the rest of the economy and provided financing for deals that snapped up businesses around the world. When global liquidity markets dried up, the banks struggled to refinance their heavy debts.

Iceland's government has seized control of the country's top three banks; it started, then abandoned, an attempt to fix the value of Iceland's currency, the krona; and it has temporarily closed the stock market.

The International Monetary Fund has offered Iceland a loan in order to get through its present financial difficulties, but Haarde has not committed to the loan. The country's government also is negotiating a possible loan from Russia.