Seven local councils ignored warnings over creditworthiness and invested millions days before the banks went bust
The Audit Commission has accused seven local councils of negligence for putting money into Icelandic banks days before they went bankrupt.
The authorities paid about £33m into Icelandic banks between their ratings being lowered on 30 September and when they went bust on 7 October.
Kent county council paid in £8.3m in the start of October.
Spending watchdog the Audit Commission said most councils had "heeded warnings" about the declining creditworthiness of Icelandic banks during 2008 and taken action accordingly.
However, it said that some had ignored the risks and a handful had behaved "negligently".
The Commission's Stephen Bundred said: "Good treasury managers recognised those risks and managed them appropriately. Others either did not appreciate the risks or underestimated their significance."
Other councils that made deposits as the initial turmoil unfolded were: North East Lincolnshire council, Redcar and Cleveland borough council, Restormel borough council, the London borough of Havering and Bridgnorth district council.
Councils deposited nearly £1bn into the banks. The Audit Commission itself deposited £10m in Icelandic banks, which Kent county council seized on as the pot calling the kettle black.
The fate of the £954m deposited by councils and other public bodies in Icelandic banks is uncertain.