Iceland and Russia launched major efforts Tuesday to keep important banks afloat as the American financial tsunami crashed onto European shores.

Tuesday morning, the Reykjavik-based government of Prime Minister Geir Haarde dumped the directors of Landsbanki and took over the country's second-largest bank.

Landsbanki, whose chair owns the West Ham United English football club, had stopped depositors from withdrawing their own money, a sure sign of a bank in financial difficulty.

Iceland also lent the country's biggest bank, Kaupthing, $745 million to help the bank stay afloat.

In addition, the national financial authority stopped trading in the nation's six biggest banks in a bid to prevent the further erosion of their share prices.

Finally, the government received a $5.95-billion US loan from Russia to bolster its foreign currency reserves, a necessary commodity for trade and international investment.

Iceland's moves signal that a financial crisis economy watchers believed was largely contained to U.S. lending institutions is spreading as fast as a bottle of spilt ink.

"Over this period the Icelandic banks have grown hugely and their liabilities are now equivalent to many times Iceland’s GNP. Under all normal circumstances larger banks would be more likely to survive temporary difficulties, but the disaster which is now engulfing the world is of a different nature, and the size of the banks in comparison with the Icelandic economy is today their main weakness," Haarde said in an address to his countrymen on Monday.

Europe's financial pains

Russia has had troubles of its own since the beginning of September.

The country's main stock indices have lost substantial value, including the RTS, which is down 60 per cent since May, as investors reacted badly to the ongoing global financial dislocation and slumping oil prices, a factor that hits crude producing countries such as Russia especially hard.

As well, banks in France, Germany, the United Kingdom and Ireland have in recent weeks been taken over or otherwise bailed out by national governments.

These institutions, which often have lower amounts of cash on hand than their American counterparts, have been unable to write off large amounts of now-worthless asset-backed commercial borrowing without destroying their financial balance sheets.

Europe's financial paralysis has forced governments to come up with huge amounts of fiscal aid.

On Monday, for example, the German government stepped in with a $75 billion plan to help the country's largest mortgage lender.

Deposit deal

In a bit of good news Tuesday, European governments agreed to $75,000 as the maximum financial deposit they would guarantee.

The deal eased complaints after a series of countries — Ireland, Greece, Germany, Austria and Denmark — essentially said they would make good most monies deposited in their banks.

Other nations griped that the move placed pressure on their lenders since customers now had an incentive to give their cash to financial institutions domiciled in those five countries.