“Complacent” councils who invested millions of pounds with Icelandic banks just before they collapsed came under fire from MPs today.
The now defunct Bridgnorth District Council, which invested £1 million in the Icelandic banks last October, was one of a number of councils criticised by ministers in the commons. Complacency, lack of expertise and inaction all contributed to putting taxpayers’ money at risk, according to MPs.
A report from the Commons’ Communities and Local Government Select Committee says there were plenty of warning signs about the shaky state of the deposit-takers, which went under last autumn with nearly £1 billion of funds from scores of UK authorities.
Officials from Shropshire Council were not available for comment today, but previously said when Bridgnorth District Council made the investment on October 2 last year, Landsbanki had a top-rating for short term deposits with Moody, the credit reference agency.
Council officials added that an independent audit had confirmed that Bridgnorth District Council acted properly and in accordance with its policies.
The report says that some of the warning signs emerged as far back as 2006, and while a number of councils acted on them and withdrew their money, others did not.
And some councils placed too much reliance on credit rating agencies without any interpretation of the data.
The committee said: “This inquiry has exposed a degree of misunderstanding, misinformation, and complacency on the part of some crucial players, both within local authorities and in the wider financial sector, which contributed to the putting of taxpayers’ money at unnecessary risk.”
Iceland’s biggest banks collapsed last October after credit markets froze up in the wake of US financial giant Lehman Brothers’ bankruptcy.
In March a report by the Audit Commission said a number of local authorities had “negligently” deposited money in Icelandic banks in the final days before their collapse.
Earlier this month, Britain secured agreement from the Icelandic authorities to repay the £2.3 billion paid out by the Government in compensation to UK depositors in the failed Icesave bank.
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