Somerset County Council has confirmed it has £25m invested in three troubled Icelandic banks.
Council leader Jill Shortland said the money represented 2.5% of the overall portfolio.
She said the authority had always tried to be prudent and spread investments, as advised by the government.
Bristol City Council said it had some £8m of investments, in the form of loans to the Landsbanki and Glitnir banks in Iceland.
A spokesman said that at the time the loans were made, both banks had satisfactory credit ratings.
He said there was no immediate threat to the council's financial operations, but that it was too early to say what the longer-term effect would be.
North Somerset Council said it had £3m in Iceland's Landsbanki bank.