In July, Kitty Ussher, then Economic Secretary to the Treasury and now a minister in the Department for Work and Pensions, was quizzed by an influential House of Commons committee after newspaper reports that the Icelandic Deposit and Investors Guarantee Fund had insufficient resources to cover its potential liabilities. "Are you satisfied, Minister, that British investors in Icelandic banks are fully guaranteed in the event of a bank collapse then?" wondered Michael Fallon, the Conservative MP who chairs the committee. "I am satisfied that the law exists to guarantee them, yes," replied Ussher. Fallon persisted: "You are satisfied that the law exists to guarantee them?" "Yes," came Ussher's reply, "under a combination of European and British law." "So they will get all their money back?" Fallon asked. "That is the legal situation," said Ussher.
The key phrase here is 'British investors'. There was no differentiation between individuals, councils or companies. And Ussher then went on to say that everyone would be legally entitled to get their money back. If she had misspoken, no doubt the record would have been corrected.
What this does show is that there were doubts about Icelandic banks many months ago. On the face of it, it seems incredible that no one who was offering financial advice to local authorities seems to have picked up on this. And what about HM Treasury, the FSA or the Bank of England? Shouldn't one of them have picked up on what was going on and issued some advice?
UPDATE: Unity has posted a comment which shows that Kitty Ussher was indeed referring to individuals. But the point remains that there were doubts about Icelandic banks back in July and no one seemed to act on them in the investment community.