A new finance strategy following the Icelandic bank crisis has been agreed by Hertsmere Borough Council.

The council’s finance portfolio holder, Councillor John Graham, said at a meeting of the council’s executive last Wednesday that an internal audit review showed investments made in the north Atlantic island were in accordance with the council’s approved policies and procedures.

The council confirmed an investment of £1 million in the Heritable Bank in October. Mr Graham said at present the council had approximately £38m invested in 30 banks.

He explained: “The treasury management strategy is built on the strategy of spreading our risk over a number of banks.

“In some of the banks we have been investing, the credit ratings have fallen and in terms of the strategy of how we invest our money we have got to determine which banks are safe to invest.”

The strategy will use credit ratings which range from the highest, triple A, to double A and single A to the lowest which is single B. Mr Graham said the council would only invest in banks with the highest ratings.

He said: “In the guidelines that came out of central Government, wise investment suggests we should only invest in those banks that have an A rating.

“In the current climate a number of those banks which were available to us have fallen out of the A rating and therefore cease to become accessible to us as banks we wish to invest in.

“This proposal is a necessary step in continuing to invest our money in the market place.”

But, he added, by investing in safer accounts, the there would be a significant reduction in the council’s income next year.

He said: “We’re expecting £1.7m this year with interest rates approximately six per cent. We could see that halved next year.”

Council leader Morris Bright said: “The legal department at Hertsmere has lodged a claim with the administrators to the Heritable Bank, Ernst & Young.

“I would therefore hope we would be able to get some of the £1m back.”