Kaupthing Singer & Friedlander (KSF), the UK arm of the Icelandic bank Kaupthing, has been put into administration by the government.

In an announcement to the stock exchange, the Treasury said it had taken the action following advice from the bank and the Financial Services Authority to ensure the stability of the financial system.

The government said the FSA determined that KSF no longer met its threshold conditions and was therefore unlikely to meets its obligations to its depositors.

It therefore used the Banking (Special Provisions) Act 2008 in a move to ‘ensure financial stability’.

It has transferred KSF’s Kaupthing Edge deposit business to ING Direct, a wholly-owned subsidiary of ING Group, in a move intended to protect retail depositors.

The transfer of the retail deposit books has been backed by cash from HM Treasury and the Financial Services Compensation Scheme.

The rest of the bank’s UK business has been placed into administration, following advice from the Bank of England and the Financial Services Authority.

‘This is the right course of action to protect savers, ensure financial stability, and safeguard the interests of the taxpayer,’ said the chancellor, Alistair Darling.