Avoiding the ‘too little…’ complaint
Wednesday 22nd October 2008, 2:30PM BST.
WHEN the Policy Council brings forward its report on a depositor protection scheme for debate later this year, one of the issues States members will consider is whether the cost of the system and its effects on the banking sector here are justified by the reputational benefits achieved.
As the Guernsey Financial Services Commission put it in its August consultation document, introducing a DPS would ‘remove a negative’ and reinforce the status of the Bailiwick as a mature, high-quality financial centre.
Events, of course, have moved on since then and the unthinkable has happened: a locally regulated bank cannot give its customers their money back and whether they will have it all returned ultimately depends on the Icelandic Government.
For the stricken depositors, who understandably are demanding 100% of their funds to be recovered, the Guernsey scheme outlined in the consultative document will be unsatisfactory because the suggested £35,000 limit is far too low and is well short of the complete guarantee people now expect.
What the global financial crisis has done is to change the landscape when it comes to protection schemes. While the UK’s £35,000 cap – now raised to £50,000 – might previously have been satisfactory, Gordon Brown’s pledge that no leading UK bank will be allowed to fail is the new benchmark.
The old safeguards were there as a kind of feel-good insurance factor because, well, banks don’t collapse, do they? Now that they are being bailed out around the globe, 100% guarantees like that offered by Ireland and others and also promised by Jersey’s chief minister are increasingly the norm.
In addition, the experience of the Landsbanki default shows that the average sum deposited by savers is £60,000, approaching twice as much as the limited ‘safety net’ discussed in the GFSC consultation document. By the time the policy letter gets to the States in a Billet d’Etat, that figure might well have increased – as would the cost to the industry to underpin it.
In any event, it is unlikely to be regarded by investors as a reason to put their money here rather than, for instance, in an Irish bank.
Guernsey has to do something but with its reputation in shreds, the last thing it needs is to be accused of doing too little too late.
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Excellent Editorial comment.
Let us hope heed is taken of it
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Time for a reality check
According to the GFSC there are 49 licensed banks in the island with deposits of around £130 billion.
Where now total protection?
I suspcect the writer oif this comment is to young to realise the flaw in saying “The old safeguards were there as a kind of feel-good insurance factor because, well, banks don’t collapse, do they” Yes, they do.
As for the “In any event, it is unlikely to be regarded by investors as a reason to put their money here rather than, for instance, in an Irish bank”
Well I would keep clear of Irish banks. Just look at the promise in relation to total deposits. Another Iceland? .
Finally you say “Guernsey has to do something but with its reputation in shreds, the last thing it needs is to be accused of doing too little too late”
I don’t think so. Damaged yes, but so are all others. Guernsey still will be a strong candidate to invest / deposit. It’s all relative and as Barrie Stevens says in his letter many still want to keep their affairs away from the attention of the UK revenue.
I think Guernsey and a well selected range of banks might be as safe as most places.
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It’s illuminating to consider the think before action approach of the Guernsey politicians.
Only months ago before the elections we were being lectured that fianciers would make a better job of running the island that politicians. Funny that has benn said for a good while.
We now are aware of the extent of the greed driven pyramid selling of the financiers. Those of us who are older will also recall that financiers , fuelled by greed; regularly bring economies to the brink.
So, good on the States for cogitating on the issue of depositor protection.
Whatever we thinnk of the politicians they have not managed to reduce the Guernsey economy to the pitiful state the banks have brought upon themselves and us.
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Stephen
I would beg to differ.
Guernsey is now in a position that it has to borrow to provide public infrastructure. This is despite the fact that Guernsey’s economy has supposedly ballooned over the last 10-15 years. I would call that a political failure. Where has the revenue gone? Has it gone on subsidising the lifestyles of the rich and the powerful? And before any rich people come back and say they contribute more to society than the poor, your contribution is a pittance against your disposable income, therefore you do not contribute more to society, rather you enjoy the benefits of the hard working essential employees that have to juggle food, housing and heating, and invariably debt just to stay alive in Guernsey caused by the rising costs of living due to your big hoards.
Mincing about and taking an age to make any decision that may benefit the local/local depositor is not good politics.
Of course the States could not guarantee £130bn, but we have to remember that the sole aim of these institutions is to raise liquidity for parent companies. The should upstream less and pay more tax. The trickle down benefits of the wage gap IS destroying Guernsey, drip by drip.
Until there is a global recognition that we need tax harmony between jurisdictions, Guernsey will always suffer at the hands of the greedy.
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Fast Robert
Can’t disagree with this
“Of course the States could not guarantee £130bn, but we have to remember that the sole aim of these institutions is to raise liquidity for parent companies. The should upstream less and pay more tax. The trickle down benefits of the wage gap IS destroying Guernsey, drip by drip.
Until there is a global recognition that we need tax harmony between jurisdictions, Guernsey will always suffer at the hands of the greedy”
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Utter garbage re the sole aim of the Guernsey banks being to raise liquidity for their parent banks. That may well be the case for the building societies and some of the pier deposit takers but not for the many banks who provide expert wealth management, fund and fiduciary services here for their global client base. That distinction cannot be overlooked because in those areas Guernsey provides real expertise and adds real value, punching way above its weight rather than just paying over the top deposit rates which requires no expertise whatsoever.
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I was only talking about the deposit takers, David, the ones that need to offer protection. Everything else is gambling. Depositing cash should not be a gamble. At no stage does it say in the deposit products “your cash is at risk if the parent company goes belly up”, whereas if you punt on funds, for instance, there are disclaimers that you are at the mercy of the marketplace.
David, I can’t disagree with your assertions about the expertise and ‘punching above our weight’. I just happen to think that a lot of that punching is hitting the poor around the world very hard in the face.
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According to the FT
http://www.ft.com/cms/s/0/cd4f245c-a0bf-11dd-82fd-000077b07658.html?nclick_check=1
The Isle of Man is set to spend up to £150m ($244m) – half its disposable reserves and 7.5 per cent of gross domestic product – to part-compensate savers in Kaupthing Singer and Friedlander Isle of Man, a branch of the collapsed Icelandic bank.
Tynwald, the Manx parliament, will be asked to approve the scheme on Thursday to prevent a crisis of confidence among depositors in the offshore jurisdiction. The move highlights how the fallout from the credit crisis is hitting smaller economies.
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David says
“many banks who provide expert wealth management, fund and fiduciary services here for their global client base. That distinction cannot be overlooked because in those areas Guernsey provides real expertise and adds real value, punching way above its weight rather than just paying over the top deposit rates which requires no expertise whatsoever.”
Seems sound as a pound to me.
Love the phrase “pier deposit takers ” – falling into cold and deep Icelandic water!!!
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Fast Robert your earlier posting did not refer only to the deposit takers. It may have been what you meant, but that’s not what it said.
One point being missed in the many postings across all of these threads by many posters is that Guernsey is not and was never a guarantor of the safety of all deposits on the island. If every single deposit was 100% secure, then why would anybody ever accept any deposit rate offering other than the highest one on offer ? There would never be any reason to accept anything else if the risk of capital loss was constant across all banks !
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Fast Robert – I echo your comments directed at Stephen John about the States of Guerney’s economy.
I have posted several times on other streams here about the way the financial management of Deputy Trott (as he was) and Dave Clarke during the early to mid 2000′s destroyed the sizeable capital (cash terms) reserves of £800m that the States had available for projects or capital expenditure.
I understand that issues were raised at the time regarding the excessive capital outlay on multiple projects (Beau Sejour, Prison, New Jetty, Airport etc) however the States, being as it is (an old boys club with no credibility nnor objectivity in the way it operates) carried on regardless and wasted over $650m in 5 years.
Had the majority of these funds been retained then it is likely that most private depositors could have had some small recompense from the States; having said that I believe the blame, if you can call it that lies locally with the GFSC and the States, and internationally with the USA and the Senate’s decisions to provide 100% mortgages to people with no income et al and have the loan secured against the property instead of the person!
Nothing will change – the people in charge in Guernsey have enough money to retire so they don’t care about the average joe who makes investments, but they do enjoy playing with a large chess set.
Only problem is they seem to think they are playing dominoes.
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Darren
Where do you get “however the States, being as it is (an old boys club with no credibility nnor objectivity in the way it operates) carried on regardless and wasted over $650m in 5 years” from?
Wasted over $650m?
Kindly explain
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Stephen John – Ok, I’ll repeat what I wrote.
Projects – these are programmes of work that a company, or in this case, a Government, conducts in order to ensure organisational objectives can be achieved, or are additional programmes which achieve strategic goals or maintain infrastructure.
In this particular instance around projects the States paid for:
1 – New Jetty = £15m (overbudget by £11.5!)
2 – Beau Sejour = £9m (20% overbudget)
3 – Airport Terminal = over £30m (overbudget)
4 – Alderney Quay (£6m – will be overbudget)
5 – Prison revamp (£??)
6 – New Court £17.5m (on budget!)
7 – Aurigny purchase (£7m plus costs, e.g. recent £19m guarantor on 2 new aircraft)
8 – Market Square, and on, and on……..
The above is all open source material and dates over a 3-5 year period, you can search for the other items yourself if you are so interested, but this is over £130m to start with, half of which was needlessly wasted with poor project management, and very poor planning (i.e. timing) – note the taxpayer made up these shortfalls.
Other funds have also gone out of the door on various programmes, however you will need to do your homework.
The States has always been an old boys club – I woudn’t trust them to hit water if they fell out of a boat.
My experience of them is that they make strategic overarching decisions based on whoever the decision makers like in the key senior role making the recommendation for the projects / strategic planning. RG Falla is a classic example – talk about conflicts of interest.
I know the PSC operates within the states, but they have no audit capability in house so how on earth can they identify overspend, fraud, et al.
If you want any more answers with respect of expenditure do your own homework and contact the States. If you can get any sense out of them then well done.
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