FINANCE chiefs at the Cheshire West and Chester Council are getting to grips with the Icelandic banking crisis.
The council's deputy leader and finance portfolio holder Cllr Les Ford (Con, Frodsham & Helsby) told a meeting of the full council he supported a call “for an independent inquiry” into the apparent failure of the credit rating system used by local authorities to guide their investments.
His reply came in answer to a question from Cllr Helen Weltman (Con, Northwich West) who referred to “the recent financial problems caused by investments by local authorities in Icelandic banks”.
Cllr Weltman asked how the Cheshire West and Chester Council could revise its procedures to ensure its money was invested at the lowest possible risk in order that future spending on wages, pensions and services is not affected.
“The recent problems in the global economy have as we know had a particularly severe impact on the banking sector,” said Cllr Ford.
“All banks and building societies have been affected to varying degrees prompting widespread government intervention.”
He explained that all local authorities place cash deposits with banks and building societies to earn a return for council tax payers.
“They seek to minimise risks by only placing deposits in financial institutions with a high credit rating and by spreading their deposits across a range of institutions,'' explained Cllr Ford.
“Many organisations, including 116 local authorities, had deposits with the Icelandic banks that have been affected by the current crisis or with a UK subsidiary the Heritable Bank.
“These include the Audit Commission which has £10m on deposit and Cheshire County Council which has £8.5m with the Heritable Bank.
“The leader of Cheshire County Council has issued a statement on the current position.
“This confirms that all county council deposits were made in line with the agreed treasury management strategy and Department for Communities and Local Government guidelines before September 30, the date on which the bank's credit ratings were reduced.
“The Local Government Association (LGA) has stated that councils who invested before this date acted prudently and has called for an inquiry into the government approved system of credit ratings which appears to have failed to foresee these problems.
“The county council has confirmed that the deposits at risk amount to less than five per cent of its total deposits and less than one per cent of its gross budget so there is no impact on its ability to pay staff or deliver services,'' said Cllr Ford.
“Pensions will not be at risk because the Cheshire pension fund is entirely separate and did not hold deposits with the affected banks.''
He concluded: “The prospects of recovering some or all of the deposits remain promising.
“It is reported that the Icelandic government has frozen some £3bn worth of assets but that the UK government has frozen some £4bn of Icelandic assets.
“The administrators for Heritable Bank report that its assets appear to match broadly its liabilities.
“Looking to the future, Cheshire West and Chester supports the LGA's call for an independent inquiry into the apparent failure of the credit rating system.
“Its own treasury management strategy will build on the lessons learned from recent events and seek to minimise risk whilst still earning a return on council taxpayers' money.''