Local Government Minister Barbara Perry said the Government was concerned about councils’ credit exposure but ultimately they were responsible for their own investment decisions.

Lehman Brothers filed for bankruptcy last month as part of the “perfect storm” engulfing the American economy.

Its Australian subsidiary brokered millions of dollars worth of collateralised debt obligations (CDOs) on many NSW councils’ behalf.

Most of the CDOs are considered safe and still returning interest, but the Federation CDO weakness will mean a $200,000 loss to both Uralla and Guyra councils.

Armidale Dumaresq Council has a $6 million exposure and recently lost more $50,000 on a series of withdrawals to fund infrastructure projects.

“Councils are responsible for their own investment decisions and the need to obtain independent financial advice has been stressed over the years,” Ms Perry said.

“All investments carry an element of risk and councils have been advised to protect the capital component as a priority.”

The Ministerial Investment Order, which limits the type of investments councils can enter into but does not recommend particular products, was recently revised following the Cole Inquiry.

The revision means councils can’t invest in structured credit-related products such as CDOs. Their investments were made prior to the inquiry.

Many North West councils are now seeking independent financial advice about their CDOs.

“We will await feedback from councils who have got the recommended financial advice before we make any decisions or speculate further,” Ms Perry said.

A Lehman Brothers Australia spokeswoman said the US parent company’s bankruptcy would have no direct impact on Australian CDOs because the international subsidiaries were separate entities.

But she admitted the CDOs could be affected by the market.