INTRODUCING a depositors’ protection scheme will have to receive the approval of the States first.
Concerns have been voiced by 12 deputies that there is a lack of protection for Guernsey depositors and that nothing is being done quickly enough to address the issue in the face of global financial turmoil.
However, Commerce and Employment minister Carla McNulty Bauer (pictured) has again said that the matter cannot be rushed. It is her department, which is mandated to bring in such a scheme.
‘Rushing to introduce a deposit protection scheme, or merely replicating a scheme in another jurisdiction, may result in one that is at best inappropriate to Guernsey’s banking sector and, at worst, may result in serious long-term consequences for the island’s banking sector.’
She said the issue would be given priority once the recommendations of the Guernsey Financial Services Commission are finalised from its consultation paper on proposals to amend key areas of regulatory policy, including consumer protection.
Article posted on 3rd October, 2008 - 1.00pm
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38 Article Comments
This has been spoken about for a good many years. It’s very necessary both for depositors and the good name of the Island Finance Industry.
Time for swift positive action - a reasonably straight forward piece of legislation.
Commerce and employment say that rushing into a protection scheme could harm banking.
Well to my mind of thinking that comment is so naive, in that not having a local scheme in place would be catastrophic to our whole way of life on the island in the event of one or more local banks or building societies going bust.
Many islanders could lose their savings, as well as outsiders who invest on the island.
Businesses and shops would close and life as we know it would change for the worse.
Imagine the bad publicity the island will get on the world stage, which I would suggest could seriously harm the finance industry long term.
This is a very difficult time, and for Minister CMB to say we must not rush leads me to ask what is plan B if the unthinkable happens.
If a bus is bearing down upon you, you have to rush as a result of quick intelligent thinking. What in the world is the Minister
pondering over exactly as this bus thunders towards her. If she knows nothing about the finance industry, there are plenty of practitioners and overseers who do and are quite competent to produce a policy almost at the drop of a hat that will afford the protection that depositors can obtain elsewhere. We have many deposit takers on this Island who are part of external groups where stability can at best be obscure. We are not in control of our destiny so we should at least provide security if we expect our deposit business to remain attractive. I am afraid it is bordering on cras idiocy for the Minister to appear to be content in her limbo. Perhaps she can at least us know at what stage she has got with her pondering and may be we can help. But be quick!
Tom
“Fiddling whilst Rome burns”
Seems to apply to GFSC as well as Deputy McNulty Bauer.
Guernsey banks have deposits of around £128,000,000,000. Is Tom Wright advocating that the States guarantee all deposits? Dream on. If not, the which deposits and how are these to be selected? Does the scheme cover Mr Scott’s millions as well as Mrs le Page’s hundreds? Who is to pay for it? The depositor, by way of reduced interest earned or the borrowers by way of increased charges?
of course all banks already have a protection scheme; it goes under the name of “shareholders funds” made up of share capital and undistributed profits and the FSC is mandated to ensure that these are adequate.
Anyone who thinks this is a simple matter is living in cloud cuckoo land.
I completely agree Brian. Most seem to think of just one side of the equation without then figuring out who and what it is to apply to and how it is to be funded. It is one thing to say that all deposits should be underwritten - and quite another to think through what the consequences of that may be.
I note that despite all his huff and puff Matt F and his cohorts have yet (as far as I am aware) to say what they actually contend should be introduced - merely that “something” should be done.
Brian
Seems to me that half the people who contibute to most subjects on Have Your Say are living in cloud cuckoo land
I must say I certainly was not under the impression that protection would be 100%. Something similar to the UK perhsps.
As for the protection of the public we have seen the inability of non executive directors as well as, in the UK the FSA, Treasury and Bank of England.
If Guernsey cannot (or will not) provide a basic deposit protection facility does it deserve to be a centre of internatioal banking?
Ray if some of us are living ” in cloud cuckoo land” I would be very interested to hear some sort of explanation for this comment.
Brian V. We do have an intrinsic problem that is of our own making. We need the business. Of course we as a taxpaying community cannot give guarantees of that proportion but there has to be a policy of insurance that should be funded by the finance industry. It is in its interests to do so. What in the world is going to ensure that the funds that sit on deposit in our books do not disappear and quickly to where adequate protection is afforded. No good contemplating your midriff while that bus thunders towards you. If on the other hand, we do not really want the business then do nothing.
Tom - which insurance company would be good for the required size of policy cover - AIG perhaps ?!
Its important to look at how banks operate here. Their licence application is approved by the GFSC either on the basis of the Guernsey bank’s paid-up share capital relative to its proposed activities, and/or as a result of a “guarantee” of the Guernsey bank’s activities by its parent bank (which is regulated elsewhere). If a Guernsey bank fails then its parent bank steps in under the “guarantee”, which is fine. But what if the parent bank fails ? At the moment Guernsey has no liability in respect of such a failed Guernsey bank, but how far would our £220m of reserves go if we were guaranteeing all bank deposits here (say £128m) ? Why/how can Guernsey take such a risk ? The Bank of England, the Fed and the Bundesbank have never taken such risks until now but they have deep enough pockets and the ability to print more money if required. Guernsey could never hope to dig itself out of such a deep hole, and so its entirely right that we don’t rush in to offer 100% guarantees of all Guernsey bank deposits.
If the parent bank “guarantee” system was not in place then Guernsey’s banking industry would surely only be a fraction of the size that it is today. How can the Guernsey taxpayer possibly agree to use Guernsey’s reserves to cover against the knock-on risk of something happening in a remote part of a banking group which Guernsey is not even responsible for regulating ?
Muzeek.
Having only discovered this Have Your Say malarky in the last couple of months I must say that some contributors( perhaps half was a bit over the top)do seem to be living in a little dream world of their own
There are some who believe very passionately that we should turn to Communism to solve all ills,others who believe we should get rid of the idle, and not so idle, rich and make up the loss of tax revenue by growing our own vegetables,and yet more who would love to see North Beach grassed over to make a lovely picnic area.
Some even believe that paid parking will get people out of their cars rather than morph quickly into its real purpose of leaching yet more stealth taxes from the workers who keep the town alive.
No problem with dreaming of course but look me in the screen and convince me that any of the above has a cat in hells chance of happening
Ray
The cloud cuckoo land is not realising that the public are unhappy. A few of you have vested interests in maintaining this sweet, sweet status quo, but for a growing majority things are getting tougher than what we are being led to believe it should be. How many times do we here how well we are doing, about how rich we are, about how our standard of living is the envy of the world?
Yet we faff about doing nothing to help the locals. All that happens is this daft adherence to trickle down, this appeasement to the rich and the continuing ignoring patronising arrogance from our politicians when people dare to complain. I see no ‘communism’ here, idealism maybe, but without ideas we get led by sheep by the morally dubious.
There is no cloud cuckoo land in futile internet blogging, but there are those who choose to insult, because they are insulted that people can think differently to them, and so come over all self righteous.
Politicians are here for the people, not for the banks. The public perception is otherwise. That is not healthy.
The “commie under the bed” view of some participants is just nonsense on stilts.
Still it deflects from the facts that should be debated.
No one has suggested a communicat type state and I wonder if some of the “commie under the bed” school realise just how communist countries actually worked?
Lawrence
You are obviously unhappy with the way the present Deputies are leading us.
However these are the people the majority of the voting public selected only six months ago.
Some are brand new like the hyperactive Matt Fallaize ( keep going mate ) and others are what you might term ‘ repeat offenders’ from the previous assembly.
The fact is that they were the chosen ones in a free vote and the only way you’ll ever get passed that problem in a Democracy is to rally sufficient support from the unhappy majority for your alternative ideas and get voted in next time
Best of luck with that but I must admit to finding some of your messages quite scary
Brian Veillard has got straight to the crux of the matter. Never mind the ethical considerations, Guernsey simply cannot afford to guarantee the £128 billion cash on deposit in the Island.
Even if we opted for a very modest guarantee - say 10% of deposited funds - that would still work out at aroung £12.8 billion. That would be a tax liability of (very roughly) £200,000.00 per head of population.
Let me just check my personal finances … nope, can’t afford it.
Better watch out for the surcharges, then CD!
David. I am sure you are teasing. I do not wish to comment on the structure you have finely laid out as it is useful to have at hand but I suggest that it may not be that relevant. I have not said that the States of Guernsey should provide guarantees. Neither have I suggested access to insurance companies. Nothing but nothing, institutions nor government, can provide protection against Armageddon. If that happens then everything perishes and we have to think of something else when all is lost. Then everyone of us will be in the ranks of those that Lawrence regards as priorities in the community. What we seek to do is to provide cover in an environnment of anticipated risk. So where elements fail they are hopefully overwhelmed by those that do not The States are there to impose an adequate system on the industry. The subject of protection for depositors has been, so I believe, under review for a while and I should imagine that a plan has been configured. So I can imagine, (I will avoid emotive words such as ‘insurance policy) an arrangement whereby deposit takers must themselves provide secured guarantees according to their book. These are added to a central fund. In that sense assessment of the security has to take account also potential liabilities to the parent and counterparties and limitations thereto.. In short protection is wholly the fiscal responsibility of the Industry.
We are tending to see all manner of problems proferred to defer a decision but this might mean that it will be taken for us.
Motives are always essential elements. So in essence how much do the institutions wish to maintain a book in this Island. They will have weighed up its commercial value to them. How much does the Island in fact wish to maintain this hitherto juicy fish taking into account the overall effects of Zero 10. Quite a bit perhaps. We have historically boasted of our stability being the main attraction for international clientele. We now have a challenge that overides this and we should really be falling back on the factor behind our survival thus far and that is that we have always been quick to react to changes beyond our shores.
A word on risk as a thought from one whose greatest risk is getting on a push bike. There are some that are real but so devastating that we have to ignore them and get on with our lives . The cost of even trying to provide protection would seriously debase our economies. For instance, we know that there is a potential tsunami of giant proportions from a geological fault threatening the shores of the Atlantic both sides. But we have to turn away in the hope!
Tom - I wasn’t teasing at all….any form of insurance or guarantee places the insurer or guarantor at ultimate risk. Somebody, somewhere, has to be willing to take that insurance or guarantee risk.
You raise a very important point re. the value of the pure deposit-taking sector to Guernsey (and in this sense I would differentiate between some of the other value-added services which the banks provide, such as fiduciary services, fund admin services and investment management services). Does the local corporate tax take which is now generated from very fine deposit margins, together with the PAYE from their employees’ salaries, compare favourably with the same taxes and therefore the contribution to the island generated by local fiduciary, fund and investment management businesses ? I doubt it very much but when you also add in the factor of the risk to the island of “insuring” or guaranteeing those deposits, maybe Guernsey should no longer be focusing on “pure” deposit-taking business.
David asks whether “Guernsey should no longer be focusing on “pure” deposit-taking business”
Certainly a conclusion I’ve reached. If the island cannot provide a modicum of protection how can it inspire confidence?
The massive inflow of deposits when times are good is great, but when times turn sour, the potential reputational damage is immense.
One question gentlemen and ladies.
I have savings locally with a bank who has a parent company in the UK, now what would be the problem with the local bank transferring my account to the parent company which would then give me protection.
I ask this as I am being told its a possibility.
Guernsey residents can open accounts in the UK and subject to status are welcome.
With a GY post code you will receive your interest tax free.
Might be a sound move
Looks like the bubble is growing and I expect Guernsey’s will burst very shortly.
The smarter investors will go to the Isle of Man where guarantees are being put in place as I write.
Jersey may go the same way as Guernsey.
The only sound investment on Guernsey at the moment is if you have a large greenhouse at the back of your property to start growing tomatoes again.
Stephen
As always some great advice, think I have said that once or twice before.
Having watched the BBC news this morning they interviewed the presenter of Radio 4s money box. He was concerned enough to mention Landsbanki and the most telling thing was that Guernsey had no bank depositors’ protection scheme. Now with the advice he gives which is always good, and the amount of people that listen to him on the radio and may have watched him on the TV this morning, how many of them will think twice of placing their hard earned money in Guernsey? Come on the States and the GFSC now is the time for action not as Deputy Parkinson said on TV last night, getting it together for the November States Meeting. Lets have action now!
Interesting Point Grumpy, however since when have the States ever been dynamic?
They are good and quick to fire people in the education system who stand up for themselves, but, come on, dealing with a real world issue.
That will require several months of debate.
I watch BBC and CNN World news a lot and Landisbanki has been all over the place, even getting mentioned in Australasia.
The problem with the States is the elected are voted in by their hangers on friends, not because they have any capability.
Do you wonder why so many bailed out of the house last year? They could see the writing on the wall of course; despite their stupidity.
My bank account was opened at a local branch but is actually in the UK; I seem to remember having to declare my residency in Guernsey. I must assume I’m protected under the DPS.
I heard the money box chap also. Pointedly mentioning Landsbanki Guernsey - did not scan well and left we wondering what the benefits of an ‘Offshore’ or Guernsey bank account actually were.
Happy to be educated.
For all the fancy arguments, if Guernsey hangs their own Landsbanki people out to dry, the message to potential customers of our ‘great’ banking system is clear.
Lots of people have lost lots of money. They are angry and of course they WILL make a big fuss. It will be all over the UK/international newspapers shortly.
Sitting on hands and thinking of the ‘prefect system’ whilst the roof caves in is cloud cukoo land.
I was not aware that the parent banks were actually guaranteeing their subsidiaries in Guernsey - I was under the impression that the GFSC had chosen to accept undertakings or letters of comfort instead.
Looking forward, the protection scheme will need to be funded by the banks resident in Guernsey themselves - this might not mean a need for actual cash to be placed in a separate deposit or fund (who would guarantee that deposit?). Instead it could be made a condition of annual licence renewal for each bank to confirm a letter of credit (or some other instrument) in favour of a dormant fund that would be activated when required at which time the banks would contribute sufficient to cover all deposits held by the failed bank.
The lawyers and accountants would need to deal with their issues in arranging this but, given the need, it shouldn’t be too hard to arrange.
Here we are on the horns of a dilemma. We can’t afford a States backed compensation scheme given the level of deposits here, but no scheme will leave us exposed to a massive loss of confidence in the island from outside. the good times would be over, especially with Jersey making political capital out of this…..
I am a landsbanki depositor. I left my savings in this bank. At the moment it looks like I have lost everything. All other depositors in every other country have been protected but nothing for Guernsey. If Guernsey do nothing then I cannot understand how people would trust their savings in the future to banks based there.
See this low tax juristiction may be money for old rope when things are going well, but it’s the rope on which you may hang when things go tit’s up.
My partner and I have 20 years worth of savings in Landsbanki - and only Monday morning were we told by someone who works at Landsbanki that our savings were safe. (We had phoned up to ask whether we could transfer funds).
Does anyone really expect me to trust the banks ever again after this!!!
If Guernsey do not protect the savers then we are finished.Over the years we have lost nearly everything.The holiday trade is in tatters because the airline fares were much to high.The off shore banking fell because of tax laws and the cost of living in Guernsey is so high that people are leaving in their hoards.I fear that this could be the beginning of the end because we have nothing to offer anymore.
Current events are clearly demonstrating just how small Guernsey is and just how big a potential debt can be allowed to generate by reason of its existence. I do urge the Authorities to move out of this traditional and somewhat insular step by step approach to a crisis that extends beyond anything it has had to face since it embarked on marketing itself as a safe haven. We have done everything we have been told by ‘bosses’ to underpin our status and how our pride has run rife.
While other governments are taking their lead finance institutions by the scruff of the neck in an attempt to bring order to chaos we sit by. Surely not in the hope that at the end of it someone bigger will speak for us. How we wish to be able to hide under someone else’s cloak right now. Well it won’t be there as nations become introspective in self survival. I know I have for some time in various channels in the Press and elsewhere been somewhat negative for the prospects for survival of the industry on which we have come to depend. ‘What worth Zero 10 when the bird has flown?’ It was in the hope we might just turn our minds to a more realistic assessment of the future rather than look to the next set of lights!
I mentioned further up this exchange the bones of an arrangement where all Institutions licensed to operate must by law, provide adequate protection for depositors by means of sound guarantees (or LOCs as someone has mentioned) housed in a composite fund for Guernsey. In the evnt this will also impose a discipline for ousting reckless practices and rewards. Today we place our pennies in what we think are traditionally sound establishments but it is where they lay it off that really matters. And then there is lending!
I appeal to our Treasury chief not to merely rely on ‘parochial’ meetings and States proceedings, and I don’t mean to be irreverant, but to gather the best brains about him and take his cudgel post haste to where it matters and that is the Boardrooms of the Institutions that hold sway over their interests here. He can hold ‘licences’ to their heads and then at worst we will see whether they are interested in their operations here or not. With some respect, I do not feel industry bosses here are able to rise to this level of ‘conflict’
We have no time.
It is truly desperate for those people locally that are suffering from the failure of Landsbanki and I include the staff. Perhaps there is an answer, but Moodys downgraded this bank some six months ago and there seems to be no machinery to respond, especially in an environment where the writing had been on the wall for well over a year that there were serious problems, real but hidden, threatening the finance sector globally compounded by underlying problems that it currently masks of energy, food, certain recession and the ever weakening reins on inflation.
I would like to see the response of Peter Neville to the following questions :
Was Mr Neville aware that Credit insurance for debts at Iceland’s biggest bank, Landsbanki, was priced at 610 points while that for Kaupthing is priced at a hair-raising 856. Given that these two have taken billions in UK retail deposits, it may be a sobering thought for savers to consider where they are putting their cash. These banks are now seen as the most unsafe in the developed world. (source Iceland’s banks top ‘riskiness league’ by Simon Watkins, Financial Mail
16 March 2008, 12:36pm http://www.thisismoney.co.uk/investing-and…amp;expand=true
Comparable figures for UK banks were
HBOS was 235
Alliance and Leicester was 342
Barclays was 170
HSBC was 145
Was Mr Neville aware that early this year commentators were warning that “Credit spreads are implying there’s a chance of default over the next five years. Not a probability, but a real possibility.” Source Matthew Hegarty, acredit analyst at Barclays Capital in London interviewed by Bloomberg.
Was Mr Neville aware that the central bank of Iceland took steps to boost bank industry solvency as a global credit crunch makes access to funding difficult.
Was Mr Neville aware that Icelandic banks were no longer required to include obligations at foreign branches when setting reserve levels.
Was Mr Neville aware that the implication of this was that “It can be expected that this change will considerably lighten the reserve requirements of those banks that operate branches abroad,” the bank said”
Source Bloomberg 25 March 2008
What made the GFSC ask Landski to put additional assets into Guernsey (some three months ago)
Several years ago Talmai Morgan stood up as a main speaker at the STEP conference in London and declared that he (as the then head of the fiduciary side of the GFSC) intended to rid Guernsey of all of the smaller trust companies that had the cheek to be applying for licences.
He got his wish. They have all been forced by the GFSC to go elsewhere or have closed down altogether. There has been recent talk in the GEP about the jack boot approach to regulatory control and nothing supports this notion better than the way the smaller Trust Companies have been treated.
Professional Indemnity insurers will tell you that none of these Trust Companies ever had any claims against them by disgruntled or loss-making clients - there were none. The PI claims came from clients of the larger Trust Companies run by the accounting or legal giants in the Island who err regularly, not to mention the bank trust companies who also suffered claims.
The claims involved in all of this are not huge and the GFSC insisted (rightly!) that all of the players should have insurance against claims which they did.
So how hard was it for the GFSC to realise that banks could fail and that depositors would also need some sort of insurance.
Duh!!
We now have this situation where, once again, the banking supervision has failed MASSIVELY
Please accept my apologies for this long post, which is essentially a copy-and-paste job from something I posted on another online forum in response to the barrage of criticism which we States members (quite rightly) are having to withstand.
Btw, I don’t always check this forum that frequently, so if you wish to get me it might be better to e-mail mattfallaize@cwgsy.net or call me on 241333.
As a people’s deputy, I do not hesitate to accept my share of what is perfectly justifiable criticism from the public.
States members are elected to represent the interests of those who put us there.
And every one of us is part of a government that has failed to act as promptly as our constituents have a right to expect.
After years of consultation with the industry, it is simply not acceptable that Guernsey is still without a Depositors’ Protection Scheme.
It is a failure of successive States. I have been in office only since May of this year. Nonetheless, this House has had enough time to put right the complacency of its predecessors on this issue, and we have not done so quickly enough. For that, an apology is perfectly in order.
On the other hand, may I add the following.
Very shortly after being sworn in as a people’s deputy on 1st May, I was part of a small group of about six/eight (mainly new) deputies who started to take a very close interest in the absence of a Depositors’ Protection Scheme.
We started to apply pressure to the GFSC and Commerce & Employment - the States department under whose mandate this falls.
I think it’s fair to say that, for some time, we got virtually nowhere, at least until the implications of the credit crunch locally became more stark.
In the end the director-general of the GFSC agreed to meet a small delegation of ‘backbenchers’. That was the meeting that ended up being turned into last Monday’s GFSC/Policy Council presentation to all States members, which was given quite a bit of media coverage.
I also wrote a press release about 10 days ago which was signed by 11 other deputies.
It was carried in the Press. It included the following:
“We wish to express in the strongest possible terms our increasing concerns about the absence of any form of protection for local bank depositors in Guernsey.
“In view of global events and the current volatility of financial markets, we are not content that measures necessary to safeguard the interests of retail banks’ local customers are being pursued as promptly as our constituents have a right to expect.
“We regret that at present there appear to be no plans to take this matter to the States until the spring of 2009 at the earliest, which in our view is far too long.”
I am not aware that any among the 12 deputies who signed that release have altered their position whatsoever.
And at every opportunity, we have made that position clear to the GFSC, Commerce & Employment, and the Policy Council.
At 2pm last Monday - when deputies met with the GFSC/PC - we were told that all banks trading locally were secure and well-capitalised.
Having received that “professional” advice from the industry regulator, I repeated it on Monday evening when I spoke with a parishioner who was concerned about the security of a substantial amount of money he held on deposit at Landsbanki Guernsey.
I woke up the following morning to discover that while I was speaking with that parishioner, the Royal Court was placing Landsbanki Guernsey in administration, with the full support of the GFSC.
I have since written to the director-general of the GFSC to request confirmation of when his organisation become aware of Landsbanki Guernsey’s imminent collapse. I received a short reply yesterday where he said he was not prepared to tell me.
I wrote back to him advising that I could think of an appropriate reply, but that I would rather not be referred to the States members’ code of conduct panel.
With the exception of those poor islanders who now fear they have lost their savings in Landsbanki, I can assure you that nobody is more frustrated, angry or disappointed than the 12 deputies who signed the above letter a week-and-a-half ago.
I am going to spend some time this weekend speaking with some of them and considering whether there is anything else we can do at this stage.
I think we can say we have already succeeded in shifting the timetable for a DPS forward quite considerably. For a long time, we were being told that proposals would not be before the States until spring 2009; now we are told they will be presented for approval at the next but one States meeting, at the end of November 2008.
Is that soon enough? No, which is why we are still trying to encourage the sub-group looking at this issue to put together its proposals more quickly.
But if that fails, really the only option for a group of ‘backbenchers’ wanting to force an issue is a requete. However, it would be unwise for a small group of deputies to try and write the details of any DPS by themselves, so any requete could only direct, say, Policy Council to come back to the States with detailed proposals asap, and they tell us that’s what they’re already doing. Aside from that, the rules of procedure require a requete to be lodged not less than 60 days before it is debated in the States. So that’s hardly a short-cut in this case.
Personally, I wonder whether an emergency Billet could be considered by the States once the sub-group has finalised its recommendations. The rules of procedure allow an emergency meeting to be convened as long as there is at least three days’ notice. It’s a question we’re asking of the relevant ministers.
In defence of Deputy Parkinson, who as of this week is chairing a DPS, he has clearly made considerable progress already. As I say, the date for proposals to be presented has shifted from spring next year to next month.
And comparing Guernsey with Jersey is a bit unfair. Jersey may look like it has taken swift action, but that action has consisted of their government (with annual income of a few hundred million, like us) guaranteeing several billion pounds held on deposit. If they are ever called upon to meet the commitments they have made, at best their taxpayers will be faced with an unthinkable, massive bail-out bill, and at worst it could utterly destroy their public finances. They have taken the gamble that they will never be required to activate their guarantee.
At least when we eventually do put a scheme in place, the plan is that it will be funded by the industry itself, limiting the liability of taxpayers as far as possible.
None of that is a get-out, though. It’s taking too long. We deserve the criticism. And we should be prepared to apologise for that.
Matt Fallaize
Matt Fallaize
WOW. You are an absolute geezer. I’d buy you a pint any and every day of the week. We desperately need many more people like you representing us as an Island. You have been elected by the people and are a person that wishes to work for the people. I read what you say carefully and it all make sense. Keep up your fair attitude because you are gaining massive amounts of respect from us Islanders. CHEERS GEEZER.