Sunday, 19 October 2008

Councils Could Lose All Interest In Icelandic Banks

After the collapse of Icelandic banks, it has emerged that UK Council's may lose all the interest they have gained from investments - that's even if they get back the original investment.

When the Icelandic banks collapsed, the Icelandic government were quick to reassure UK investors that they would get back all their money, and that any deposits were safe.

The banks have collapsed as a result of the global credit crunch, and possible recession, that is hitting the finances of the world.

Council Money

It then emerged that various UK councils, as well as police forces, had money tied up in the banks. Once the money was frozen the government became involved, hoping the broker a deal to ensure that UK investors would get their money back.

The Independent has reported that the councils could lose up to £60 million in interest - money which they may have based future spending on.

The three local councils that are thought to be most at risk at the moment are Uttlesford in Essex, Wyre Forest in Worcestershire, and Tamworth in Staffordshire.

The Audit Commission, who are overseeing proceedings with the UK money in Iceland, have also had to admit that they have around £10 million invested in one of the bigger Icelandic banks, Landsbanki.

Facing Problems

Plymouth City Council, based in Devon, has already shown signs of strain. The council has around £13 million tied up in Icelandic banks, and has had to borrow £9 million in order to pay its bills.

Other councils who may soon become a concern include Braintree in Essex, Cheltenham in Gloucestershire and Daventry in Northamptonshire.

With so many local councils being hit by the collapse of the financial system in another country, it makes you question how long it will be until the whole local government and national financial system in this country goes under?

Government Support

So far, the British government has been able to prop up ailing banks, starting with Northern Rock a few months ago. Essentially, we all own the bank (and as such, also own shares in various football teams which the bank supported!).

The government also managed to help out other banks before they started facing the same kind of problems, with a massive government loan. Banks that didn't take any part of the government loan, such as Barclays, managed to find money elsewhere.

But if the local government itself starts losing money, how long would it be until this spreads upwards, towards national government?

If that were to happen, how long would it be before the government was no longer able to keep the credit crunch at bay?

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