THE banking and fund sectors of Guernsey’s finance industry are under threat from the world stock market troubles. Guernsey Financial Services Commission director-general Peter Neville said the two areas were most at risk because of their exposure to sub-prime investments.

‘In banking, lending tends to be short term for liquidity purposes and not for long-term gearing of funds,’ he said.

‘In the funds area, exposure to sub-prime investments tends to be relatively limited because most are in the fund of funds business. As a result, there is a spread of investments and exposure to any one kind is more limited.’

The recent market turmoil has been triggered by a wave of mortgage defaults in the US as the housing market slows dramatically.

Markets across Europe and Asia are damaged and unstable because there are fears of a wider crisis in the financial system due to the huge liabilities of banks and other financial companies linked to the unstable sub-prime mortgage sector.

Mr Neville said the GFSC had contacted all Guernsey firms it believes to be at risk.

‘There appear to be one or two pockets of higher exposure, so we cannot say that the problems will not affect any funds here but the majority are diversified, with only a few being specialised in the areas of particular concern.

‘The markets remain volatile and it is therefore too early to draw any conclusions.

‘Having said that, no particularly disturbing trends have become apparent and we are continuing to watch the situation very closely.’

World stocks rose on Monday, regaining some ground after the US Federal Reserve cut a key bank lending rate, but the markets remain unpredictable.

Mr Neville said the GFSC was one of the supervisors around the world that are addressing the issues that have arisen as a result of the recent market conditions.

‘We and other supervisors are in close touch with the firms involved to find out where the exposures are and then to make sure that appropriate action is being taken.’