This Is Guernsey

By Nick Mann

A FAST-TRACKED scheme to compensate savers if a bank collapses is ready for approval next week.

It would see retail bank depositors protected for up to £50,000, but with the total claim on it limited to £100m. in a five-year period, customers could in certain circumstances end up with less.

The scheme’s introduction was hastened by the collapse of Northern Rock and then Landsbanki Guernsey - but the scheme will not be applied retrospectively.

Treasury minister Charles Parkinson (pictured) led the technical group that drew up the plans and said it had not been possible to introduce it any more quickly. ‘We looked at what might be available in other jurisdictions and rapidly concluded we didn’t want to copy any of them exactly, although there was a fair input from the Gibraltar and Isle of Man schemes,’ said Deputy Parkinson.

‘We felt none of them allowed proper proportion of risk for banks in the scheme. We came up with something that was the Guernsey model that’s a bit different from the others, different because other schemes are either pre-funded or post-funded.’

The first £20m. would be covered by a States captive insurance company, then £10m. would be paid by all licensed banks equally and the £70m. balance in the event of a collapse would be met by the banks in line with their eligible deposits and the ‘risk’ they represented.

An independent board would oversee the scheme’s operation.

The States would meet the initial set-up cost of £100,000, but the administration would be funded by the banks through an annual levy.

Deputy Parkinson said it was not possible in the current economic climate to buy cover on the insurance market, especially for credit risk, so the scheme would be self-insured.

The States would incorporate a captive insurance company to cover the risk, run by Treasury and Resources, with the banks paying an annual premium of £2m. a year for the cover it would provide.

Each would pay in accordance with the size of retail deposits it holds and the risk of the bank collapsing.

Deputy Parkinson said the £100m. cap was necessary to make the scheme sustainable.

‘We couldn’t have a scheme with unlimited liabilities. If a bank collapses and the scheme is called upon, we don’t want claims under the scheme to cause the next bank to collapse,’ said Deputy Parkinson.

‘What we have to have is a scheme that’s not just sustainable but credible. If we make commitments to bail out deposits the industry cannot meet, the scheme would not be credible.’

He said it would not be retrospective because the banks would have no appetite for accepting liability for an event that had already happened.

Commerce and Employment will present the report to the States on Wednesday and, if approved, the scheme will come into force immediately.

Minister Carla McNulty Bauer said: ‘It is intended that the scheme will protect small retail depositors from losing their deposits in a banking collapse and that its introduction would enhance the island’s international reputation as a well-regulated financial centre.’

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Article posted on 21st November, 2008 - 2.28pm