Councils may recoup Iceland cash

Public bodies placed about a billion pounds in Icelandic banks

Local councils which invested hundreds of millions of pounds in Icelandic banks have been given indications that they may get most of their money back.

Banks in Iceland were taken over by the authorities when the country's financial system collapsed in October.

Administrators for Heritable Bank, the UK arm of Landsbanki, have indicated its creditors could get up to 80% of funds back - equating to about £300m.

It is thought about £1bn in UK public money was deposited in Iceland's banks.

Heritable Bank is a UK bank which was placed into administration after the parent bank, Landsbanki, was nationalised by the Iceland government.

BBC business reporter Ben Shore said local government officials had also indicated that negotiations over deposits at other Icelandic banks were going well.

The Audit Commission, which itself deposited £10m in Icelandic banks, has previously said most councils had "heeded warnings" about the declining credit worthiness of Icelandic banks during 2008 and taken action accordingly.

However, it has said that some did not do this, describing a handful as behaving "negligently".

It reserved particular criticism for institutions which continued to deposit money after 30 September, when the credit ratings of Glitnir and Landsbanki were downgraded to "adequate".

This is below that deemed acceptable under guidance to town halls.

The two Icelandic banks went under just over a week later.