World Trade: Iceland's lack of security for foreign investors

Iceland's guarantee of all bank deposits has a big hole in the scheme: customers of its internet bank Landsbanki are covered by a very limited scheme - in fact, for UK customers, only the first GBP16,000 of their deposits is covered, although the Financial Services Authority in the UK has said that it is examining whether UK customers will be able to claim the balance of the GBP50,000 guarantee that it gives to customers of UK banks since last month.

UK customers have been in a difficult position: after the collapse of Iceland's financial sector shares and the government's freezing of deals in the sector yesterday, all attempts to access the internet bank's website failed as it crashed under the weight of users trying to get into their accounts.

The bank has two subsidiaries in the UK, retail banking and securities. It is also a major player in the British high street with holdings in a number of high-profile chains via various investment vehicles.

The bank's difficulties, along with much of the Icelandic sector, is that the tiny country, with a population of less than a third of a million, decided to punch above its weight by borrowing heavily on the international markets to build what amounted to a sovereign wealth fund - but without the backing of the government. There is no hope of the Icelandic government being able to pay all foreign deposits.

In March this year, Iceland's banks were marked as some of the riskiest in the world and Moody's and Standard and Poor's have both downgraded Landsbanki to some of the lowest bank ratings in the world, except for short term which Moody's places at his highest rating.