AS ISLANDERS awoke yesterday, the unthinkable had happened: one of Guernsey’s 49 registered banks was unable to give customers back their money. What was worse from the investors’ point of view was that as countries elsewhere were extending their depositor protection schemes, this island has effectively done nothing.
And while information generally was scarce for worried savers, Landsbanki Guernsey Ltd was very clear on two important points:
Is the money covered by a deposit protection scheme in Guernsey? No. Are the deposits covered by the Icelandic or UK schemes? No.
They were the only definite answers in a day of stress and confusion as Landsbanki fought to achieve its survival as a going concern by asking the Royal Court to appoint an administrator and thus give it protection from its creditors.
Whether the attempt works remains to be seen, but the administrator has first to clarify how much money the bank actually has and whether it can recover certain key assets. Only then will he be able to determine whether savers get all, some or none of their money back.
While the crisis follows the worsening problems of the Icelandic economy, islanders will be questioning the role of the regulator, the States and the banking industry itself over this matter.
Doubts may have been raised in the financial press for some months over the security of Icelandic institutions but few ordinary savers follow such publications. More importantly, the fact remains that the Guernsey Financial Services Commission and the States of Guernsey were happy to see Landsbanki offer very attractive interest rates as a positive inducement for people to use the bank and, as it now turns out, put their funds at risk.
Barnett Christie (Finance) Ltd did the same in 1978 and the regulations that followed were supposed to prevent a second bank failure. While Landsbanki may not have collapsed, it will feel like that to its depositors, who will conclude that the island’s system of regulation has failed them.
They will certainly feel in the absence of any protection scheme that the States has failed in its obligation to ensure a well-regulated financial services sector.
And who could blame them?
Article posted on 8th October, 2008 - 2.15pm
One Article Comment
“the island’s system of regulation”? More like a bunch of pen pushers who exist solely to appease the OECD and other higher organisations, while occupying plush offices and swanning off to China on junkets while Rome burns.
John Roper said he could have done the job with five people. Thet have over 100 people working at the GFSC.
What are they doing there? Obviously they are not protecting our money - are they?