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Iceland Faces Bank Failures as Ruling Drains Capital

Iceland’s creditor-controlled banks face a second round of failures as a court ruling depletes their capital while the government and pension funds balk at providing additional financing, according to regulators and investors.

Lenders, including the successors to failed Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf, may lose as much as $4.3 billion, equal to a third of Iceland’s economy, after a June 16 Supreme Court decision banned loans indexed to foreign currencies, according to the Finance Ministry. That would push the capital of some banks below the legal minimum, said Gunnar Andersen, head of the Financial Supervisory Authority.