Council seeks bank 'safe-haven'
Updated on 02 December 2008
Finance chiefs from the local authority with the largest amount of money locked in failed Icelandic banks are looking into becoming part of a national "councils' bank", a spokesman said.
Kent County Council (KCC) said it has been in talks with the New Local Government Network (NLGN) about forming a national bank as a more secure way of safeguarding taxpayers' money.
The local authority has £50 million tied up in Landsbanki, its UK subsidiary Heritable and Glitnir Bank and is still waiting to find out what prospects there are for retrieving it.
KCC leader Paul Carter wrote to Chancellor Alistair Darling in the fallout to the crisis suggesting that moving all public sector and charities' investment to British banks would boost liquidity for UK banks.
But he added that any such move should be supported by a guarantee from the Government that public money would be safeguarded. NLGN director Chris Leslie said the idea of local authorities running their own bank would create a "safe haven" for taxpayers' money.
He said: "If only a quarter of the £15 to £20 billion of local government reserves were invested in such a councils' bank then millions of available capital could be released, regardless of how sticky private lending between banks might be.
"While this model might be perceived as a humdrum savings and loan facility, limited to domestic local institutions only, in the swirling vortex of international risk a safe haven such as this should be highly coveted."
KCC chief executive, Peter Gilroy, said the idea of local authorities running a bank would result in a "win-win situation". He said: "Finding a way forward means looking at the big picture and seeing how local councils from across the country can work together.
"What is clear is that the public interest principles of running a bank would be great for business and would sit well alongside other work KCC and other councils are doing to support local economies. With that in mind, we will be working with the New Local Government Network and other councils on the idea of a councils' bank."
Last month representatives from KCC travelled to Iceland to meet creditors and find out what position they, and other local authorities were in. A spokesman for the council said it was currently unable to comment on the meeting for legal reasons although initial indications were "positive".
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