Rules on investments and savings to be tightened

Release Date:  21-Apr-2009

Bristol City Council is taking a new approach to the management of its savings and investments in response to lessons learnt from last year's Icelandic banking crisis.

The new ways of working are set out in the council's revised Treasury Management Strategy, being presented to the council's Cabinet at its meeting on April 30th 2009.

The council made £8 million in loans to two of the affected banks, Landsbanki and Glitnir and that money remains at risk - although the council has not been one of those criticised by the Audit Commission for the way it handled such investments.

The £8 million represents 4% of the council's total investments. The loans took account of independent credit ratings at that time and were made in line with the council's established policies and procedures.

However, the council is determined not to be complacent and the new Treasury Management Strategy outlines how it is significantly reducing long term borrowing and using any cash balances to reduce existing debt, rather than loaning it to or investing it in banks and financial institutions.

Under the new approach, large investments will only be made in government-approved institutions or with banks, building societies and commercial funds that have the highest ratings across three different independent credit rating agencies. Any bank or building society receiving a lower rating from just one of the three agencies would be avoided. The council will also limit the length of most large loans or investments to just 12 months.

Councillor Barbara Janke, Leader of the Council, said: “The new Cabinet has inherited a very difficult financial situation and it is critical that we act now to learn the lessons from last year and put in place even more stringent controls to minimise risk. I accept that at the time, our existing controls seemed adequate and Bristol City Council certainly wasn't alone in falling victim to a banking crisis caused by the recession. However, this Cabinet is determined not to be complacent and we can assure residents that we will be monitoring the situation very carefully and ensuring that our officers and our advisors continue to apply these even tighter controls consistently and effectively.”

Author:  Simon Caplan

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