Savings of £2m in tax payers' money are feared lost after the Icelandic bank which holds Ealing Council's cash went into receivership.
Banking giant Glitnir was nation-alised last week in a last ditch measure to prevent collapse after Iceland's entire financial system was plunged into crisis in the stock market crash.
There is now uncertainty over whether the council will be able to recover the £2m, which represents around two per cent of the reserves that Ealing has spread around different accounts.
Labour leader Julian Bell this week questioned whether warnings about the stability of Glitnir had been heeded, and claimed council cash held at other Icelandic banks had been hurriedly withdrawn before the collapse.
Cllr Bell said: "It's not looking hopeful about the £2m. Glitnir is in receiver-ship and any overseas institutional investments are at the back of the queue in terms of getting their money back.
"You can go back to 2006 and find concerns expressed about all the Icelandic banks. I want to know when we put this £2m in, and also when we pulled out any money in other Icelandic banks. I'm seriously concerned about whether the council saw the warnings and ignored them."
The council this week sought to reas-sure people that the decision to place Glitnir in receivership would have no adverse impact on services in Ealing.
A spokesman said: "The council has followed best practice to spread its investments as widely as possible to ensure the maximum return for our investments without compromising the safety of the council's cash.
"The council, like most public organisations, invests in a wide range of banks within strict guidelines. Risk management plays the fundamental role in our investment activities, and due to the value of transactions involved, safety and risk awareness always remains the priority over returns. The council takes regular advice from our independent investment advisers to minimise risk.
"The council will be supporting other London boroughs in their attempts to get their investments protected by the Government."
Ealing is not believed to have any investments in Landesbanki and Kaupthing, which were also placed under the control of Iceland's Financial Services Authority.