For want of a better name, call it the Cod Republic, a population of 300,000 living off an abundant supply of fish, geothermal energy and debt. Iceland is a mystery to most Britons. Its affluence is difficult to explain: the annual income per capita of about $40,000 ranks alongside Switzerland, Hong Kong and Kuwait, but it is a fair bet that the Icelandic people will be feeling a bit less wealthy over the next few years. The takeover of Glitnir, the country's third-largest bank, will cost each man, woman and child in Iceland almost $3,000.

The Icelandic Government had little choice but to step in to save one of the trio of banks (the others being Kaupthing and Landsbanki) that have played a key role in putting this rocky outcrop of volcanoes and strange pop singers on to the financial radar.

These banks expanded like crazy: Glitnir's last balance sheet was worth about €20 billion and the three have accumulated assets of almost €100 billion, about ten times the size of the Icelandic economy. Like their Viking ancestors, they have raided the shores of Europe, building up extensive operations in foreign financial centres. Iceland's aggressive entrepreneurs, including Thor Bjorgolfson and Jon Asgeir Johannesson, who founded Baugur, the retailing conglomerate, blazed the trail and Iceland's banks helped to fund the ambition. The latter has made his presence felt on the UK high street, buying big names such as House of Fraser and Hamleys.

The Icelandic banks have dipped their toes into Britain's retail banking market, pursuing British depositors to fund their expansion in the UK. These will get some protection from the British deposit insurance scheme and the Icelandic Prime Minister promises that the chill Arctic wind that is now blowing through Reykjavik will not bring the house down. The Government is in charge: the depositors are safe.

If you are heavily committed to one of these institutions, you must now assume that you are banking on Iceland rather than some vague multinational enterprise, the business model that these banks wished to emulate. Iceland's inflation is 14 per cent, the interest rate is 15.5 per cent. This country borrowed its way to prosperity, even securitising fishing rights as a means of creating liquidity for borrowers. Such ingenuity is impressive, but it is worth remembering that at the end of the day, a basket of herring is just a basket of herring.

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