UK rules out backing depositors

Alistair Darling was giving evidence to a Westminster committee

The UK government will not underwrite savings in the collapsed Kaupthing, Singer and Friendlander (KSF) Isle of Man bank, the chancellor has said.

Manx deposits of about �500m were frozen when the UK froze assets of Icelandic parent bank, Kaupthing.

Treasury officials are representing the Isle of Man in ongoing talks with Iceland to retrieve savers' money.

But Alistair Darling told a Treasury Select Committee on Monday the money would not be underwritten by Britain.

Parental guarantee

"The Isle of Man and Guernsey operate a specific regime, and for tax reasons and others, people choose to go in there," said Mr Darling.

"They (Manx banks) are regulated by the Isle of Man authorities, and I would have to think long and hard before saying, for the first time, the British Government would then go and underwrite savings made in another jurisdiction.

"It's not something that we would lightly do."

Manx government officials said KSF Isle of Man was forced to close when the UK government froze Icelandic bank assets last month.

Kaupthing, which was nationalised by the Iceland government, last year issued a parental guarantee to take responsibility for the liabilities, including deposits, of its Manx subsidiary.

The Manx government insists that the Icelandic government must honour that guarantee and returns savers' money.