Darling’s gamble

Alistair Darling’s refusal to guarantee the savings of those councils and other bodies which have money tied up in Icelandic banks could have some particularly nasty side effects.  Writes the Times:

“…The Times learnt that some town halls were considering withdrawing all their cash from private institutions and putting it into more secure Government bonds. If dozens of councils follow suit this could lead to a damaging run on the banks, local government experts cautioned. Westminster and Kensington and Chelsea, two top London councils, said that they were looking at this option.

Tony Travers, of the London School of Economics, said: ‘Local authorities hold tens of billions of pounds in pri- vate banks. If the Government refuses to give them any protection there they will take it out, causing a run on the banks. The council-tax payer will also lose out as town halls will get lower interest in government bonds.