Councils slammed over Iceland banks

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A report from the Commons' Communities and Local Government Select Committee said 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.

Complacency, lack of expertise and inaction all contributed to putting taxpayers' money at risk, according to the MPs.

The report said 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.

Kent County Council (KCC) was left facing the biggest shortfall of any UK authority, with £50 million invested with three Icelandic institutions.

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.

It found that seven English authorities, including KCC, breached official guidance and their own treasury management protocols in continuing to invest in Iceland after the banks' credit ratings were downgraded below acceptable levels.