COUNCILS with millions of pounds frozen in Icelandic banks and their subsidiaries have rejected accusations they were reckless with taxpayers' money.

Stoke-on-Trent City Council, Cheshire County Council, Newcastle Borough Council and East Staffordshire Borough Council had a total of £20 million frozen when Iceland's three biggest banks collapsed on October 6 last year.

Only one authority – Stoke-on-Trent City Council – had invested directly in one of the banks. The others had all deposited money in UK-based subsidiaries, which also fell victim to the collapse.

But an investigation has found that all four had made deposits with the doomed banks just weeks – and in one case only days – before they went under, despite warnings about potential risks.

Stoke-on-Trent City Council deposited £2 million of the £5 million it lost with Landsbanki on August 8.

East Staffordshire Borough Council, which has had £4 million frozen, had invested £2 million on September 8.

Newcastle Borough Council deposited the whole £2.5 million it has lost with Heritable Bank on September 14.

And Cheshire County Council was still investing in Heritable on September 22 and 23, when it deposited £3.5 million and £5 million.

The four authorities are among 105 English councils which have had funds totalling £900 million frozen.

Hopes of recovering the cash have dwindled in recent weeks and the Government has indicated it is not willing to bail authorities out in the current economic climate. A report claims councils ignored doubts expressed about Icelandic investments by banking watchdog the Financial Services Authority in March last year.

Some authorities heeded the warning. Staffordshire Moorlands District Council withdrew all its money from Icelandic banks the following month.

But those councils which continued to invest with the banks have defended their actions, instead laying the blame with Government-approved credit rating agencies which failed to flag up signs of trouble.

Newcastle Borough Council's cabinet member for resources and efficiency, councillor Helen Morris, said: "We invested with the Heritable Bank on September 14, 2008.

"Our strict treasury management rules were followed and our overall investments were spread around a large number of institutions."

A Cheshire County Council spokesman said: "We deposited £8.5 million with Heritable during September 22 and 23 and on both days the bank's credit rating was at level one, which is the strongest you can get."

Stoke-on-Trent City Council's portfolio holder for resources, councillor Kieran Clarke, pictured, said: "If this authority knew of any dangers in investing in Icelandic banks, of course we would have reviewed our arrangements.

"The Financial Services Authority's comment last March urged caution for retail savers investing in all foreign banks, not specifically Icelandic ones."