MPs in Call for Investment Inquiry; ECONOMIC CRISIS IMF Warned of Difficulties Facing Banks

The Journal (Newcastle, England), October 14, 2008 | Go to article overview

MPs in Call for Investment Inquiry; ECONOMIC CRISIS IMF Warned of Difficulties Facing Banks


Byline: William Green Political Editor

DEMANDS were made last night for an inquiry into Northumberland's pounds 23m Icelandic investment despite fears over the country's banks.

County MPs called for an investigation after it was revealed the International Monetary Fund (IMF) warned Iceland's banks were facing difficulties as early as August last year - months before the county council invested its cash.

Northumberland County Council, which was one of more than 100 UK public bodies to invest in the country, last night said it only put cash into highly rated banks, took external advice to make investments and complied fully with national guidance.

But the IMF's report said the banks were heavily reliant on international money markets just as funding began to dry up amid the credit crunch, which almost destroyed Northern Rock.

Financial analysts also began downgrading the institutions from February this year, warning they may need "outside support" to keep operating.

A council spokesman said the potential loss to the county was assessed before the cash was invested, but stressed more then 100 local authorities had found themselves in a similar situation.

The authority also revealed it put pounds 1m in an Icelandic bank as late as last month. But the vast majority of pounds 23m investment was made by the previous administration. Labour's Blyth Valley MP Ronnie Campbell and Hexham's Tory MP Peter Atkinson called for an inquiry.

Mr Atkinson said: "I know there is always a great pressure on council officers to get best value for money.

"But I am surprised they failed to spot the warning signs. Was it reckless? There certainly needs to be an investigation."

Mr Campbell said: "We need an inquiry. What it needs is a ratepayer to ask for the local government ombudsman to inquire into why they were investing in banks as late as last month when everyone knew they were dodgy. That is just madness."

Morpeth's Tory council leader Peter Jackson said the situation "beggars belief".

The calls for an investigation came after Chancellor Alistair Darling said he had taken steps to preserve assets in the UK - including a pounds 100m loan to a troubled Icelandic bank to protect cash stuck in the system.

He said talks between ministers and councils were continuing, but, when challenged by The Journal, refused to say how much cash - if any - would be returned to local authorities.

Local Government Minister John Healey said the impact on councils was still being assessed, although many expected to recover a "good part" of deposited cash and keep services and council tax unaffected. …

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