Council chiefs in Powys today said said they hoped millions of pounds worth of taxpayers money deposited in Icelandic banks could be retrieved.

Representatives of the Local Government Association are attending a creditors’ meeting in the country’s capital Reykjavik in an attempt to ensure that councils are treated as “priority” customers and repaid in full.

Local authorities lost almost £1 billion investing in Icelandic banks which collapsed last year.

While some banks say they will repay the councils in full, Glitnir has warned that only a quarter of cash could be handed back as part of a winding up process.

But council chiefs in Powys are hopeful that £2 million of the £4 million deposited in Icelandic banks can be retrieved.

More than 100 local authorities – including Powys County Council and Bridgnorth District Council – were left facing potential losses of millions invested in collapsed Icelandic banks last year.

Powys County Council had £4 million invested in two Icelandic banks – Landsbanki and Glitnir – which went into receivership.

Councillor Gwilym Vaughan, the council’s board member responsible for finance, said: “We hope that today’s meeting between the Local Government Association and Glitnir Bank is successful to secure priority creditor status. This aims to ensure Powys, and all other local authorities, can get the lion’s share of the money back.”

He said the money invested in the two Icelandic banks was losing interest totalling £250,000 per year.

LGA deputy chairman Richard Kemp said Glitnir was breaking the law, which he argued was clear that councils should be treated as priority customers.

Speaking ahead of the meeting in Iceland, he said: “We want every penny back for British council taxpayers. We made those deposits in good faith, we expect to be paid back in good faith by those banks in return.”

Mr Kemp said £110 million had already been repaid to councils, and more money was expected next year.

By Anwen Evans