The Leyland-based local authority has decided to put a £1m limit on investments in individual banks and give countries, as well as institutions, a financial standing rating.

The move comes with the authority trying to claw back the £5m currently frozen in the Landsbanki and Heritable.

Council finance chiefs will now approach Lloyds TSB and Clydesdale Bank, where they have long term deposits, to discuss revised terms on each of the £3m investments, including annual interest payments.

However, the authority's leaders claim it is only an 'interim' measure until it conducts its annual review of the treasury management strategy in February.

The report into the treasury management strategy was considered at a special scrutiny meeting, chaired by Coun Mick Titherington, and again at full council on Wednesday.

He said: "What we were concerned about was that, given they already had £4m tied up in the Icelandic banks, was there special consideration given to the last £1m invested on September 23?

"I was surprised there wasn't and we were also concerned with the spread of investment. Personally I don't think the council should renegotiate the interest on the long term loans. We depend on interest payments to provide service delivery and to keep the council tax down. It is important that we maintain a reasonable rate of return."

The proposals were voted through after a heated debate on taxpayers' cash being invested in the overseas banks just days before it crashed.

Coun Colin Clark, cabinet member for finance and resources, responded to criticism during the meeting by saying: "It is good in hindsight to make these comments. I am sure people would have predicted the Titanic to sink as well."

Council leader Margaret Smith said: "The review concluded that our treasury arrangements had fully complied with Government rules and best practice. However, given the unprecedented events of the last few weeks and continued unpredictability of the financial markets, the council has now agreed on further measures to make certain that we take even greater caution when deciding where to place our investments in the future.

"Whilst this may have a short term affect on the interest we earn, we feel it is important to take these steps for the next few months whilst the banking sector regains stability."

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