The crisis in the banks and financial sector has already begun to be felt in Gateshead. The Council has £4.5 million of reserves in an account with the Heritable Bank, which is the UK subsidiary of failing Icelandic bank Landsbanki.
Heritable has gone into administration though it continues to trade. A new buyer for the bank is being sought. Gateshead’s deposit is not due to be repaid until between mid-December and February.
The Council is seeking clarification on the bank’s administrators about the situation. However, the government’s current deposit guarantee scheme does not cover council or business deposits.
So far, the government has not shown any willingness to guarantee any deposits made by local councils in the failed bank.
"The only way to end the uncertainty is for the Government to guarantee local authority deposits,” said Councillor Jonathan Wallace. “If ministers can come to the aid of the big banks, they can come to the aid of councils providing vital services such as schools and social services for the vulnerable.”