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15 Oct 2008 (archived)

Council investments in Icelandic banks

Oxfordshire Councils are among 116 authorities across the country that have been caught up in the Icelandic banking crisis and are waiting to hear when their investments in three Icelandic banks will be re-paid.

The councils, which between them have budgets in excess of £1.3bn, have at any one time, cash flow and investment balances which are invested within the banking sector.

In common with all councils, this investment is regulated to seek cash security and uses national bank ratings to ensure credit worthiness. Councils also ensure that risk is spread by limiting the maximum exposure to any one institution - this applies in financially stable times as well as in the current turbulent times.

The Icelandic banks were highly rated when funds were placed with them and have only been reduced very recently. The Oxfordshire councils have £28.5m invested with the Icelandic banks, which is repayable at different dates over the next year.

The breakdown of the funds invested across councils is:
Cherwell District Council: £6.5m
Oxfordshire County Council: £5.0
Oxford City Council: £4.5m
South Oxfordshire District Council: £2.5m
Vale of White Horse District Council: £1.0m
West Oxfordshire District Council: £9.0m

The Local Government Association has been negotiating with administrators on behalf of local authorities about the return of deposits and said discussions had been encouraging. Talks were continuing (October 15th).

Councillor Margaret Eaton, Chairman of the LGA, said: "Councils' experience of ensuring stability in a financial crisis will mean that they will keep vital frontline services running through thick and thin and this situation is no different.

"Prudent financial management means that councils put their money into a diverse range of banks to make sure that any risk is spread to minimise the impact of problems in the financial markets."

Councillor Barry Norton, Leader of West Oxfordshire District Council said: "The Local Government Association will no doubt be working hard on behalf of the many councils that have funds invested with the Icelandic banks. We have been in direct contact with our MP David Cameron to ask him to press the government to ensure local authority assets are protected in the same way as individual's assets."

"Our Council's investment strategy remains robust and funds of £67million have been placed in a spread of around 25 highly credit rated institutions to reduce our exposure to any one bank failure. In this case we have £9million at risk spread over three Icelandic banks. We believe that the government, which has encouraged councils to get the best investment returns on their funds, has an obligation to press the Icelandic government to reverse its decision to abandon non-Icelandic investors in its banks or step in itself to safeguard councils' interests.

"The funds were not due to be returned until next summer so there are no short term issues for this Council's finances or its operations with business continuing as usual."

For more information, see the LGA website.

Last updated Oct 15th 2008

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