Iceland has suspended its stock exchange and took control of the country's largest bank as it grapples with the financial crisis that is threatening to overwhelm the nation.
The government also used sweeping new emergency powers to create a new bank that will take over the bulk of the domestic operations of another one of its collapsed banks.
The country is struggling to get a grip on the collapse of its top-heavy banking system, a situation that Prime Minister Geir Haarde has warned is putting Iceland at risk of "national bankruptcy".
A stock market boom in the mid-1990s supported the rapid growth of Iceland's banking sector, which came to dwarf the rest of the economy and provided financing for deals that ranged across Europe and conquered swaths of the British economy, from fashion retailers to top soccer teams.
The strategy gave Iceland one of the world's highest per-capita incomes, but when markets dried up around the world the banks struggled to refinance those heavy debts.
Now Icelanders are watching helplessly as their economy implodes, causing ripples throughout Europe, where tens of thousands of people have accounts with subsidiaries of the Icelandic banks..
The OMX Nordic Exchange Iceland said that equity trading would remain halted until Monday because of "unusual market conditions."
The government's decision to take control of Kaupthing, the country's leading bank, which has assets and debts across the continent, means that the Financial Services Authority now has control of all three of the country's major banks. The other two, Landsbanki and Glitnir, are in receivership.
The authority said the action was necessary to ensure the "continued orderly operation of domestic banking and the safety of domestic deposits."
It also used emergency powers, rushed in by parliament earlier this week, to hive off most of the domestic assets of Landsbanki into a separate entity to be called "New Landsbanki" that is fully owned by the government.
"The decision means that the new bank takes over all the bank's deposits in Iceland, and also the bulk of the bank's assets that relate to its Icelandic operations, such as loans and other claims," it said in a statement.
"The decision ensures continued banking operations for Icelandic families and businesses," it added.
In an attempt to curb any panic, the regulator stressed that both Kaupthing and Landsbanki were open for business as usual and that all domestic deposits of the bank were guaranteed under Icelandic law. However, the move leaves the international operations of Landsbanki, which have already caused a diplomatic row with Britain, open to question.
Prime Minister Gordon Brown has threatened to sue Iceland to recover the lost deposits of some 300,000 Britons who hold accounts with IceSave, the online arm of Landsbanki.
With local governments also holding accounts worth hundreds of millions of pounds in Icelandic banks, the British government has also used powers under terrorism laws to freeze Landsbanki's assets until the status of the deposits is resolved.
Savings bank ING Direct UK has agreed to buy more than £3 billion pounds of deposits held by around 180,000 British savers with Kaupthing Edge and Heritable Bank, which is owned by Landsbanki.
Mr Haarde acknowledged that it will take the tiny nation of just 320,000 people years to recover from the crisis.
Glitnir, the country's third largest bank, said that it had received support from the Norwegian Banks' Guarantee Fund of £400,000 for its Norwegian unit.
Glitnir's move into receivership was a sign that troubles at the bank were larger than the government thought when it announced less than two weeks ago that it would nationalise the bank - the switch into receivership gives Glitnir temporary protection from its debt obligations.
In urgent moves to downsize the overgrown banking sector, the Financial Services Authority immediately began to restructure the bank, saying it would sell its Finnish and Swedish businesses.