Council Leader reassures residents on Icelandic banks collapse

South Norfolk Council leader John Fuller has reassured residents that the authority has no investments in collapsed Icelandic banks.

And he revealed that South Norfolk Council moved £1 million from a subsidiary of Landsbanki just eight days ago. South Norfolk Council had invested a total of £2m in Heritable, a Landsbanki subsidiary in October last year.

£1m matured in August this year, and was moved elsewhere.

The second million matured on September 30 this year - eight days ago. However, 24 hours earlier on September 29, a ratings agency downgraded Landsbanki. It triggered South Norfolk Council's decision to reinvest that final £1 million elsewhere.

Councillor Fuller said:

"South Norfolk Council remains one of the country's financially strong councils, providing services to the public which the Audit Commission rates as excellent.

"In the case of Landsbanki, we are delighted to have escaped the current turmoil.

"We followed the guidance on spreading risk and not leaving all our investment eggs in one basket for long periods. So the rules worked, but that's little comfort to those councils who had locked away money for long periods."

Andy Radford, South Norfolk Council's Director of Finance, and Acting Chief Executive said:

"The Council relies on interest earned from its cash deposits to fund front-line services. The security of this public money is critical. The Council has always managed its cash investments so there is a balance between security and return.

"When some institutions began to struggle twelve months ago, we took the decision of tightening our criteria on which banks and building societies we could invest with, how much we could invest, and for what period. This has proved to be the correct approach. "However, we are not are out of the woods yet, and we remain at some risk should some of the more secure UK banks or building societies get into difficulties."

South Norfolk Council’s investment strategy is to spread the risk of any one institution failing by investing sums of up to £3 million only. How much the council invests, who with and for how long is determined by the credit rating issued by rating agencies at the time of placing an investment.

Once an investment is placed, it is a form of contract and the council cannot recall it for any reason. If the credit rating subsequently falls, the council has no power to get its money back.

In 2007, the council invested in Northern Rock, and as a result of the bank's own crisis, the council tightened its criteria for determining maximum investments and time periods.

The new policy has meant the council is earning less interest in the short term, but it is better protecting the council’s investments against individual institutional failure. It cannot however, protect against market failure.

The strategy accepts that there is always a risk in the current economic climate that the council may suffer a financial loss, but it aims to manage its investments and risks in a measured and prudent way, ensuring governance arrangements are effective. The council reports on its investments to its Cabinet every quarter.

Related pages

• Latest news