SCENARIOS - What next for Iceland?

STOCKHOLM (Reuters) - Iceland is facing the worst economic crisis in its history after the government was forced to take over three major banks and chaos reigned in its markets.

Here some scenarios of what could happen next:

IMF RESCUE

Many analysts believe the tiny north Atlantic nation will have to turn to the International Monetary Fund (IMF) for a bailout. As well as providing much-needed hard currency to deal with the systemic crisis, which the island does not have itself, help from the IMF could also restore some confidence, both at home and abroad.

IMF funds could be used to help Iceland cover its basic import needs, provide assistance to the shattered bank system and perhaps be used to support the currency, where trade has essentially frozen and its true value is difficult to estimate. Iceland is also set to negotiate a loan of around 4 billion euros ($5.5 billion) from Russia, but analysts do not think this will be enough to solve the deep problems the country faces.

A recovery of the economy is likely to be a long-haul business of restoring foreign and domestic confidence, getting the banks back on their feet and trying to deal with the impact of a spike in inflation after the currency collapse and a possible rise in unemployment.

BANKS TO BE DOMESTIC OPERATIONS ONLY

Now that the government has taken over the three top banks -- Kaupthing, Landsbanki and Glitnir -- they will likely be sliced down to core domestic operations under state control, perhaps being merged into one bank or two.

Asset management arms and trading businesses will probably be sold or wound down, something which is already happening at Landsbanki, where 550 people have already lost their jobs.