City Council has £9m exposure to Icelandic banks

Further to my previous post, it has been revealed that the City Council has £9m invested with failed Icelandic banks - significantly more than many district Council's affected by the problem.

There is currently no assurance that any of this money will be repayable - as a debt free authority it has relatively large sums in total (£81m) invested in the money markets, but losing £9m of this would be a serious problem. So whilst there is no immediate cash crisis, if the money proves not to be recoverable, it could seriously impact capital reserves, and the longer term capital investment program. In the short term, revenue accounts are likely to come under pressure due to a shortfall in interest received.

The Council has played by the rules - it invested in a diverse number of banks, and only used those that were top rated. The problem is that on the 1st of October credit ratings for Icelandic banks plummeted, and the City Council's money was locked in until May 2009 so couldn't be withdrawn.

I will have questions to ask about whether anything could have been done to avoid this problem, and what steps should be taken now to minimise the risks in future.