Iceland's government and banks scrambled Sunday to find the cash needed to rescue the country's banking system and cushion an economy that is one of the hardest hit by the global financial crisis in the developed world.

Iceland's banks swelled during the booming economy in recent years, lending heavily overseas. Now markets are penalising the nation of 300,000, worried that its banks may not weather the credit crunch and the government won't be able to afford to bail them out.