The Bank of England is providing a loan of £100 million to Icelandic bank, Landsbanki, to help maximise payouts to UK creditors.
In a statement to MPs on the continuing financial turmoil, Chancellor Alistair Darling said he met with the Icelandic Finance Minister in Washington at the weekend and stressed the need to work together to help creditors of failed Icelandic banks.
With local authorities worried about accessing millions of pounds tied up in the banks, he said: "Our authorities have set up an arrangement, agreed in principle, for an accelerated payout to depositors.
"We are also working with the Icelandic authorities to facilitate claims by UK charities and local authorities on their deposits held at these Icelandic banks .
"In addition, the Bank of England is today providing a short term secured loan of up to £100 million to Landsbanki to help maximise the returns to UK creditors."