The revelations piled pressure on the Government to recover cash from Iceland or use taxpayers' money to compensate the growing number of bodies with investments in Iceland's collapsed banks.

Local councils and police authorities have invested more than £1 billion of public money in Iceland and stand to lose out as the banks' liquidators give priority to paying off Icelandic creditors.

A team of officials from the Treasury and the Bank of England arrived in Reykjavik for talks with their Icelandic counterparts. Gordon Brown has threatened to seize the assets of Icelandic companies if British deposits are not returned. Government sources are hopeful of a "constructive" settlement, but ministers face growing calls to provide firm guarantees to wholesale investors.

And ministers have promised to cover individuals' deposits in Landsbanki, Glitnir and other Kaupthing units if Icelandic government adminstrators do not return the money.

However, institutional investors have no such promise.

According to the Government agency that tracks NHS trusts' finances, two trusts had come forward to admit investing in Iceland, while they would not identify the trusts, they did say their total exposure is around £2 million.