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Council has £15m in Icelandic banks
Reigate and Banstead Borough Council has £15.5 million invested in two Icelandic banks but says it's "business as usual".
Despite the Icelandic banking crisis the council says there is no immediate threat to the services it provides.
However, officials are warning that if the council does not recover the £15.5 million that may have a longer-term impact on services, jobs and, perhaps, council tax charges.
The council says the Government has to step in to help.
Cllr Mike Buttery, executive member for finance, said: "We are in unprecedented economic times. However, despite the turmoil in the banking system, we still remain in a strong financial position.
"It is important to clarify that due to many years of prudent financial management we have over £60 million in reserves which we use to provide services and offset council tax increases.
"There are very strict Government guidelines about where this money can be invested and the amount of risk attached to those investments.
"Until recent times the Icelandic banks met all the Government criteria for risk and had excellent credit ratings of the highest standard.
"We have invested a total of £15.5 million in two Icelandic banks - Glitnir and Landsbanki.
"Although we have had no official confirmation that our investments are lost we support the Local Government Association in efforts to get the Government to support the public sector in the same way it has supported the banking system."
Councils across the country put their money into a diverse range of banks to make sure any risk is spread to minimise the impact of problems in financial markets and the borough council invested in Icelandic banks after it followed Treasury guidance sent out in March 2004. They said councils should "seek the highest rate of return consistent with the proper levels of security and liquidity."
At the time of investment both banks were reputable banks with solid credit ratings.
The council has so much money to invest because it received over £50 million when it sold its council housing to Raven Housing Trust in 2002.
This money is used to help pay for services and is also invested so that the interest earned offsets council tax charges. Each year the council spends over £55 million providing services. Of that, income is almost £40 million, £6 million comes from the Government and £10 million from council tax.
It also receives Government grants and other funds spread over a number of months. The money is invested in banks with solid credit ratings to accrue interest and withdrawn when it is needed.
Significant contingency funds are held. For example, in an emergency it may have to spend millions of pounds putting people up in temporary accommodation.
The council says it would be inappropriate to live hand to mouth. If things went wrong, questions would be asked about why it was not prepared for bad times.
11:07am Friday 10th October 2008
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