LESS than a month ago, the business community sat down to breakfast with the Financial Times to mark the release of an upbeat report into Guernsey’s finance sector.

Sub-prime loans and the credit crunch were on the agenda, but the prevailing view was that island was well placed to ride out the storm.

Our finance sector was divorced from the worst excesses of the City, we learned, and might even offer a calm haven to investors seeking refuge.

Within a few weeks the ‘economic tsunami’ sweeping around the world has wrecked any notion that the Bailiwick could escape unharmed.

The failure of Landsbanki Guernsey has exposed a terrible flaw in the island’s financial make-up. With no deposit protection scheme, it is clear to the world that investing in an offshore bank can mean losing much of the security offered by the larger parent bank and, more importantly, the larger economy behind it.

Small, in this case, is not beautiful. And security, not interest rates or customer service, is everything in the current market.

So, while Gordon Brown vows that in such extraordinary times ‘government cannot just leave people on their own to be buffeted about’ and calls for strong leadership and vigorous action, Guernsey meekly accepts that it is powerless to help.

Just how damaging that revelation will prove to be to the island’s lifeblood industry remains to be seen.

Small investors throughout the world may be turning to safer havens, but the big money lies with fund, trust and pension managers – people with millions to invest who are looking to maximise their profits using a well-regulated centre with good tax breaks (which we still are).

Those markets, too, could be set for a massive shake-up. The prime minister yesterday promised ‘a new financial architecture for the years ahead’. That includes global supervision to match a world where money flows across borders and firms operate multi-nationally.

What that means for Guernsey is, as yet, unclear. One thing is certain: the challenges posed by this crisis are only just beginning.