Banks may face £1bn Icelandic payout

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Britain’s banks could be forced to pay out more than £1bn to cover the cost of compensation payments made to UK savers in failed Icelandic banks at the height of the financial crisis.

The British Bankers’ Association (BBA) said lenders will make the first of three of multi-million pound payments to the Financial Services Compensation Scheme (FSCS).

The Government stepped in to guarantee the savings of hundreds of thousands of Britons with deposits in Icelandic banks and UK lenders must now help repay the costs.

Compensation was funded by the FSCS with loans from the Treasury. The FSCS has been unable to recover the full amount that is owed from the estates of the three Icelandic banks – Icesave, Heritable Bank and Kaupthing Singer & Friedlander – and is currently out of pocket by £1.4bn.

UK banks, building societies and credit unions will now collectively pay £1.1bn over the next three years to fund the bulk of the shortfall, with further payments also expected from the Icelandic banks.