Protection scheme is not dead, says Treasury
Saturday 18th October 2008, 9:29AM BST.
FEARS that establishing an industry-funded depositor protection scheme might not happen have been eased by Treasury minister Charles Parkinson.
He brushed off a warning from a leading figure in the island’s financial services sector, who said in yesterday’s Guernsey Press that he might find it difficult to negotiate and agree such a scheme, by stating that talks on its introduction had been progressing well.
‘Initial discussions within the technical group I am heading, which includes three representatives from the Association of Guernsey Banks, have been very positive,’ said Deputy Parkinson (pictured).
‘We are due to meet again next week to discuss the detail behind the proposal for a depositor protection scheme and I expect to be able to make a further statement on our progress after that meeting.’
The leading financial figure, who did not wish to be named, wrote to the newspaper to warn islanders that placing the financial burden on banks would be a very unattractive proposition for them.
- To read Guernsey Press stories in full click here for subscription details. Individual editions are now available online.
Island Life
All about Guernsey
Ambassador of the Year 2011
History & Heritage
Visitor Information
Guernsey's government
Campaigns
Voice For Victims
Voice for Victims is a campaign aimed at promoting the rights of those affected by child sexual abuse.
This is Guernsey
Guernsey Press
Useful Links
I will spell this out for those who cannot seem to get it…
NO COMPENSATION = NO DEPOSITS, bye bye Channel Island s and Hello Isle of Man.
See ya!
Report abuse
“Anon Guernsey Press Friday, in trying to make a case for banks and others not contributing to a depositor protections scheme says
“As far as I know, Guernsey is the only place (including Jersey, apparently) where competitor banks rather than governments are going to have to pick up the tab for defaults”
I wonder how much this senior financier actually knows. The UK FSCS web site says
“FSCS is funded by levies on firms authorised by the FSA. FSCS’s costs are made up of management expenses and compensation payments”
The Anon writer than goes on
“So don’t think for one minute that Deputy Charles Parkinson is going to find it easy or quick to negotiate and agree an industry-funded protection scheme and we should hope that he takes the time to get a good understanding of all the consequences before he does something that, as former deputy Stuart Falla always fears, destroys our economy at a stroke.”
I think he is right here. After zero ten I asked on the Editors Blog what the States would do the nest time the blackmail card was played. I didn’t expect the reluctance to pay would materialsise so soon.
If Anon really reflects the industry view than the question arises whether Guernsey can afford to retain an offshore banking provision. Perhaps Anon should reflect on the probable loss of his or hers comfortable style of living if their bluff is called”.
“Anon Guernsey Press Friday, in trying to make a case for banks and others not contributing to a depositor protections scheme says
“As far as I know, Guernsey is the only place (including Jersey, apparently) where competitor banks rather than governments are going to have to pick up the tab for defaults”
I wonder how much this senior financier actually knows. The UK FSCS web site says
“FSCS is funded by levies on firms authorised by the FSA. FSCS’s costs are made up of management expenses and compensation payments”
Similar industry financed depositor protections schemes exist in other offshore tax havens such as the Isle of Man.
The Anon writer than goes on
“So don’t think for one minute that Deputy Charles Parkinson is going to find it easy or quick to negotiate and agree an industry-funded protection scheme and we should hope that he takes the time to get a good understanding of all the consequences before he does something that, as former deputy Stuart Falla always fears, destroys our economy at a stroke.”
I think he is right here.. After zero ten I asked on the Editors Blog what the States would do the next time the blackmail card was played. I didn’t expect the reluctance to pay would materialise so soon.
The greed of the finance industry and its lack of social responsibility, is seen in Anon’s assertion that the taxpayer pays for the sins and omissions of his industry. It beggars belief.
If Anon really reflects the industry view then the question arises whether Guernsey can afford to retain an offshore banking provision. Perhaps Anon should consider the probable loss of his or hers comfortable style of living if the bluff is called”.
Report abuse
I would like to make a prediction that once the administrators of Landsbanki Guernsey have quantified the final amount to be recovered, the States will try to make an ex gratia payment to put depositors in the same position as if a UK-style depositors protection scheme had been in place at the time, ie around £35k per depositor. If the administrator recovers say 80p in the pound then many small depositors would then have recovered in full and larger depositors will have lost no more than they would have done under the UK scheme.
The States of Guernsey could never have promised to come up with £200m but could far more easily come up with say £20m to £30m as an ex gratia payment which will be sufficient to save Guernsey’s reputation.
Mind you, Guernsey residents will end up funding that contribution and the second part of my prediction is that it will result in an immediate introduction of GST.
The third and final part of my prediction is that it will be obvious that the States cannot hope to compete with 100% state-funded depositor protection schemes available in the UK and elsewhere, and that the only alternative of an industry-funded scheme will see several existing deposit takers locally decide to close that particular part of their local operation on the simple grounds that the risk of having to pay up due to the failure of a weak and more vulnerable deposit taking institution would be too great for some of our larger and stronger deposit taking institutions to take. They will instead focus their centralised offshore deposit taking activities in Ireland or Switzerland. It will change the future face of offshore deposit taking business and result in fewer banks here, but wouldn’t have a big impact on the rest of our finance industry, particularly the highly profitable fund administration and fiduciary sectors.
This scenario of course assumes that the administrators will recover far more than the 30% to date from Landsbanki. If they don’t then the States will have little option than to accept that the island cannot afford to bail out the depositors, although the need for some form of future protection scheme will be no different.
In either scenario the end result is likely to be the same with the loss pa several major deposit taking institutions from our shores and we will have to cope with and adjust to that.
Report abuse
How can it be dead when it has not even come to life!!, and when, and if it does it will be far too late for the poor Landsbanki customers as it will not be retrospective.
Wake up Guernsey – you have done irreparable damage to your reputation, and I feel anything that you might put into place now will leave you as tarnished as you so righly deserve
Report abuse
David’s predictions srates the Guernsey taxpayer “could far more easily come up with say £20m to £30m as an ex gratia payment”
Whay can’t the Guernsey banks come up with the £20million?
Report abuse
Stephen – the other Guernsey banks had no control whatsoever over the management or regulation of Landsbanki (unlike the GFSC) and therefore cannot possibly be held liable (at least retrospectively) for the consequences of that bank’s actions. How does that make them culpable ?
If the banks here are to become financially liable for each other’s actions under a bank-funded depositors protection scheme then its only natural that the strongest banks, and therefore those with the deepest pockets, are going to want to vet very carefully which weaker banks they are to be exposed to. Several leading banks would not have wanted Landsbanki here in the first place….
Report abuse
There does seem to be a concert party approach to find reasons why the banks should not support each other.
So the banks should not put their hands into their pockets because they were not culpable. Neither were the taxpayer culpable.
If there is a spare £20 million or so floating about use it where it is needed – schools, health etc.
The moral card being played seems to be that making up the deficit would restore Guernsey’s reputation.
Personally I don’t think it will affect the reputation of Guernsey. There will also be a need for an offshore tax haven. Guernsey’s safer banks will still be attractive, and you can bet your life the deposits will be reading the financial pages and Private Eye like hawks.
With an alleged 600 vacancies in the finance sector it might not be a bad thing to lose a few banks.
David Your point about several leading banks not wanting Landsbanki here in the first place makes me wonder what on earth GFSC were doing not only in licencing the bank, but in its supervision during the last few weeks.
No wonder Peter Neville wants control over the investigation.
Report abuse
Stephen I agree with most of what you say in your above post.
Whilst the other banks were not culpable re. Landsbanki and neither was the taxpayer, the taxpayer was at least benefiting from Landsbanki’s presence through the resulting tax revenues (although that will of course have gone out of the window). But the other banks would not have been benefitting from any tax revenues raised from Landsbanki.
In any industry-funded scheme it is only natural that the strong will not want the weak to take part in it if it increases the risk of the strong having to pay up to bail out the weak. Nobody will want weak links in the chain.
Report abuse
David
What people are asking themselves is why are they being expected to pick up the pieces when their money was invested in a well regulated and respected finance Island.
The GFSC are not taking any responsibility, nor are the politicians or the other banks?
Who is then?
Nothing in life can ever be taken at face value again.
MY WORD IS NO LONGER MY BOND BUT YOU CAN STILL TRUST ME HONESTLY.
Report abuse
Paul
You make a sound point “The GFSC are not taking any responsibility, nor are the politicians or the other banks?
Who is then?”
Let’s have a go at pointing the finger:
The GFSC and the directors of LG both have some responsibility. Bankers and financiers generally have some responsibility. Gordon Brown and his reckless spending regime has resposnbility. Mervyn King of the Bank of England has some responsibility. The competely useless FSA has a lot of responsibilty.
Guernsey politician’s can’t really be blamed. Neither can the Guernsey taxpayer.
One lot I have missed out are the depositors themselves. There were numerous warnings, yet we see depositors blaming everyone but the cat and themselves, for their responsibilty.
Report abuse
Stephen
Are you suggesting that all investors need to become financial geniuses then?
The majority look for the best return on the undestanding that it will be returned with good faith, as per the advertisement or advice received, after all it is all well regulated and carried out to a high legal standard?
Are we all expected to read and comprehend the small print and clauses with every step we make in life?
People are just that. The majority of us are not lawers but work on faith and trust but this is eroding away.
You can’t point the finger at those just because they are not as financially savvy as those in the know.
Their money needs to be returned as soon as.
Who is going to return it?
Nobody wants to but something is going to have give because this is gaining momentum.
A consortium is being set up which can only be good. The media will have their ears wide open to each step forward.
Trust is easily shattered. Harder to restore. I can’t believe things have led us this far already.
We can trust each other as long as you don’t come from Guernsey or Iceland?
Report abuse
Paul asks
“Are you suggesting that all investors need to become financial geniuses then?
The majority look for the best return on the undestanding that it will be returned with good faith, as per the advertisement or advice received, after all it is all well regulated and carried out to a high legal standard?”
Just an awareness of what is being said about banks such as Landsbanki and Iceland. The warnings were there. It certainly didn’t take a genius nor anyone with any real degree of financial knowledge to come to the conclusion that if the worst happened you would be up the proverbial creek.
Adverts are one sided and are intended to persuade not necessarily inform.Do your own research must be the lesson from all of this. Some of us did and wouldn’t touch Landsbanki with a bargepole.
Report abuse
Stephen
Are you suggesting that all investors read the Financial Times and base their lives around mainly financial matters?
Lots of people are old and once their money is in what, up untill now has been a well respected financial institution, they tend to rest easy and look forward to the rewards.
This is also the case with those that have families or away travelling. It should not be suggested that we should be penalised for seeking the best returns on our savings.
We all strive for more. It is human nature. How about those that took recomendations from friends, family or a professional?
Sue the pants off of them?
Nobody can hold the depositors accountable. This same thing is going to happen again and again.
After little, although we ae led to believe differently, is in place to prevent it. Did anybody envisge the Bearings Bank fiasco.
Nick Leeason a single trader brought that to its knees. It can happen again but the depositors will be able to comfort themselves and opt for the account that pays no interest at all in the future!
Report abuse
Paul
Interesting point you make “Nobody can hold the depositors accountable. This same thing is going to happen again and again.”
If the depositor is aware the same thing happens again and again (your words) then they are aware of risk and accept it.
You mention “How about those that took recomendations from friends, family or a professional?
Sue the pants off of them?”
There are circumstances where legal actions might succeed against friends, family and professionals.
Report abuse
Stephen
Sounds like you share similar views to some of our politicians. Find a scape goat and make an example of them. If something is better than something else it should not start a panic. We live in a world where there is already too much caution and mistrust. Peoples uncaring attitude and money motivated attitudes stink.
Trust is everything that we rely on. When it is gone it will take a long time to restore.
Report abuse
“See ya!” Goodbye Steve.
Has anyone seen the elephant in the room? Landsbanki had a staff of about 3. If the deposits are ‘upstreamed’ Apart from a bit of ETI, a couple of cars, rent on a property that probably went to a UK pension fund, some advertising spend and a few flights. Can anyone explain to me the benefit of Landsbusted in Guernsey to Guernsey.
Report abuse
Jackie asks “Can anyone explain to me the benefit of Landsbusted in Guernsey to Guernsey”
What an excellent question. One that should be added to the list of questions for the GFSC to answer.
A really good post.
Report abuse
A back of the fag packet calculation (and excluding tax on the reinvestment of the Guernsey bank’s own paid-up share capital (amount unknown)….
Assume an average 0.5% margin on £200m of deposits (possibly that’s light in view of that bank’s apparent operational model) then that would be £1m of gross profit, less rent and salaries and other overheads etc so maybe £700k net profit, resulting in £70k income tax (under zero-10 for banks in 2008) payable by the company plus ETI from the three staff, plus the new higher tax on rateable value for business property, so maybe £120k of theoretical total tax take in 2008.
Under the pre-zero-10 regime in 2007, assuming the same level of profits, it would probably have been somewhere between £200k of total tax revenue, give or take 10%.
Not an insignificant tax take at all for a 3-staff operation (if actually collected before it went under) but in hindsight nowhere near enough to compensate for what we now know were the risks to the island’s reputation.
Report abuse