Councils in talks to set up bank

Local authorities are looking into setting up their own national bank in the wake of the collapse of Icelandic banks where they had millions invested.

Kent County Council, (KCC) the largest council investor with £50m deposited, said it was in talks with the New Local Government Network (NLGN).

It said forming a national bank would be a more secure way of safeguarding taxpayers' money.

NLGN director Chris Leslie said such a bank would be a "safe haven".

KCC's £50m was tied up in Landsbanki, its UK subsidiary Heritable and Glitnir Bank, which collapsed in October.

The council's finance chiefs have been to creditors' meetings in Iceland in their quest to recover the money.

More than 100 local authorities had more than £800m in Icelandic banks.

Public interest

KCC chief executive Peter Gilroy said the idea of councils running their own bank would result in a "win-win situation".

"Finding a way forward means looking at the big picture and seeing how local councils from across the country can work together," he said.

"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 local authorities as shareholders you have the chance to use dividends for investing in services or returning money to the taxpayer.

"It also reinforces the message that we want to keep taxpayers' money in the UK banking system - and the councils' bank develops that idea one step further."

NLGN director Chris Leslie said: "If only a quarter of the £15bn to £20bn 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."

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