REYKJAVIK, Iceland  Iceland’s financial system collapsed Thursday, and analysts said it was probably only a matter of time before the country would have to turn to the International Monetary Fund for help.

Such a move, which would make this small island nation the first sovereign state to fall victim to the credit squeeze that began last year, would require it to accept harsh measures to restore fiscal and monetary stability.

Iceland has tried desperately to avoid such a step. But the odds against it grew worse on Thursday when the government took over the last of three major banks and shut down the stock exchange.

Trading in the Icelandic krona ceased, with foreign banks no longer willing to take the currency  even at what seemed like bargain rates.