Several local authorities are considering whether to deposit money with the British arm of Spain's biggest bank Santander, amid fears about the weakness of the Spanish economy.

Westminster City Council , Kent CC and Havering DC have either withdrawn funds or removed Santander UK from its approved list of overnight depositors.

Heightening nervousness, last week the Spanish government part-nationalised Bankia, - the country's third-largest bank – a bailout triggered by the firm's exposure to massive debts and devalued property assets arising from a ten-year housing and building bubble.

Cllr Melvyn Caplan, Westminster City Council cabinet member for finance and customer has confirmed the authority had no money currently invested in Spanish banks, having transferred around £10m some 18 months ago.

‘We took the decision to transfer any money from Santander UK as this is predominantly a Spanish bank and considered by us to be a risk.

‘Most of our money is held with British banks such as HSBC which have high ratings, and therefore we consider to be a safe option,' Cllr Caplan said.

Cllr Caplan added Westminster has savings invested abroad with highly rated Swedish bank Svenska to secure higher interest returns – but insisted the most important factor underpinning their investment strategy is protecting taxpayers' money.

A spokesman for Kent CC told The MJ the council had taken no decision to remove Santander UK from its approved list of overnight depositors, and subject to getting assurances would be willing to use the bank again. 

However, they confirmed Kent's cabinet member for finance, Cllr John Simmonds, wanted to be as confident as possible the council would face minimal exposure to stringent bank capitalisation measures which the Spanish parent bank might enforce.

Local authority exposure to money deposited in foreign banks was highlighted by the collapse of major Icelandic banks Landsbanki and Glitnir in 2008 – in which more than 80 councils had lodged around £1bn in funds – attracted by high interest rates.

This February, having previously secured ‘priority creditor' status, the Local Government Association announced nearly £100m of Landsbanki held cash had been returned to town hall accounts.