£50,000 is ceiling for compensation
Thursday 23rd October 2008, 11:30AM BST.
GUERNSEY’S depositors’ compensation scheme will match the UK’s in offering protection of up to £50,000 per person.
The Policy Council’s technical group working on the introduction of scheme for the island met for the second time yesterday.
Chaired by Treasury minister Charles Parkinson (pictured) , the group comprises representatives of the Commerce and Employment Department, the Guernsey Financial Services Commission, and the Association of Guernsey Banks.
The system will be bank-funded.
‘I believe that we have today made significant progress towards introducing a depositors’ compensation scheme for Guernsey with a ceiling of £50,000, as is currently the case in the UK,’ said Deputy Parkinson.
‘We are considering schemes already in use in other small jurisdictions and introducing some of our own thinking.’
- To read Guernsey Press stories in full click here for subscription details. Individual editions are now available online.
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
Can anyone comment of the plight of savers with Landsbanki Guernsey who have lost most of their life savings?
Deputy Parkinson sounds very proud of his new compensation scheme, but it isn’t retrospective and Guernsey appears not to care about us.
Unless we are compensated the harm has already been done to Guernseys reputation.
Report abuse
…and will this cover Landsbanki Guernsey Limited deposit holders Mr Parkinson?
Report abuse
What is the bets that when this £50,000 scheme is introduced the regulators will actually start to do their jobs properly!
Report abuse
Mixed feelings on this one! On the one hand banks need to be safe places to deposit your money. They’re a business like any other and prone to risk but depositing funds in a bank should be a safe bet.
The issue with Landisbank was that it had a high risk profile and offered savers the highest interest rates on the market. Savers, including Councils in Britain, were ‘greedy’ wanting the highest return but that’s no excuse for Landisbank to not at least cover (guarantee) the initial sum depositers gave them in good faith. But depositors had warnings, Standard & Poor rated Icelandic banks risky and their banking system a ‘basket case’.
Guernsey is a terrible place for consumers. Consumer protection Law has been left on the shelf for decades by our so-called ‘public representatives’ and similarly they’ve neglected addressing consumer issues in finance.
The GFSC role as consumer protector is to wash their hands of this meltdown as they did with the Splits scandal when depositors lost £millions here in Guernsey. It leaves their £9m annual administrative costs and 100+ staff looking like lame ducks given checking for drug money and money laundering etc is utterly futile unless you can convict the person first (which the GFSC is in no position to do).
It’s time the futile empire building at the GFSC was wound down to 5 staff and a coffee machine.
Good to see the States do something for consumers (for once) to protect its reputation but just shows it takes a disaster for the establishment here catch up with modern methods
Report abuse
After all the pleadings for swift action, it is pleasing that Charles Parkinson has taken some, and he should be thanked for that.
Is it, following the theme of one of your recent comments… too little, too late.. ?
That remains to be seen.
More detail of what is proposed needs to be disclosed and what will the small print reveal?
The scheme has to at the very least equal the UK’s.
Also, the scheme needs to cover 50,000 per person per financial institution even where such institutions have the same parent company. I.E. if you have 50,000 with Royal Bank of Scotland and Natwest they both should be covered.
This needs to looked at seriously because we are still way behind other jurisdictions who offer more or full depositer protection.
Taking this into account and the damage our reputation as a safe and well managed financial jurisdiction has suffered, is this position of not equalling Jersey the correct way forward. I thought we were supposed to be working with Jersey on this issue. Clearly that didn’t last long.
Then there is what started the debacle off.
The mismanagement of the Landsbanki situation.
The Landsbanki depositers have been offered no compensation by Guernsey, so we will continue to suffer poor worldwide publicity until some positive news is given. The saga sadly continues. It could all have been avoided.
Tony Webber
There is no offer to Landsbanki depositers and therefore the poor publicity Guernsey is receiving over the mishandling of the crisis will sadly continue.
A full investigation of this whole situation should be commenced by the States, looking into the actions of all those concerned, and not just the GFSC. Will we get this, or will concealment of what happened and lack of transparent and open government continue.
Tony Webber
Report abuse
I want to congratulate Charles Parkinson and the committee on their proposals.
I have no doubt that they will ensure the retention of confidence in Guernsey. Human nature being what it is depositors will forget what has gone by in the past, and look to see what protection there is in the future.
Guerney will still be an atractive offshore finance centre. What we will see is a far more street wise investor and depositor.
Report abuse
Sorry My John. If Guernsey don’t get this Landsbanki affair sorted out very soon there will be over 2100 people that will not forget.
Need to follow the Isle Of Man and bring in the the protection scheme ASAP.
If we compare it to a Welsh Mining Town, once the pit closes it never reopens again!
Just something to think about.
This is not a dig at all the hard working people of Guernsey. Just a response to Mr John
Report abuse
Stephen
This may happen untill things go belly up again. The authorities will simply brush that one off with not having enough money to pay off their debts.
Then what? Back to where we are now?
It is only right that confidence must be restored no matter what the cost. My concern is are the authorities making guanantees for the sake of confidence?
I believe that they are. This government likes to spend and spend. Without little consideration for what the islanders would like.
We have a new school. Nothing wrong with that at all. I personally feel that it won’t be long at all before it is flooded and starts to crack up. Castlepoint in Bournemouth is a close model to base this theory on. It is not flooding but is cracking to pieces.
What about Les Beaucamps? We are borrowing to make this happen. My personal opinion is that promises are being made which can’t be met. Further it is an absolute disgrace to look after outsiders interests whilst ignoring your own peoples.
Aren’t the politicians elected by the people to serve the people? Once again it is a case of once elected, two fingers up to the people who got them there and slam the door firmly shut and we are left out in the cold.
If only Stewart Falla could have been our CM. Things would be much better allround i’m sure.
Report abuse
Mr Wall
The States will consider what seems a good protection scheme when it meets in December. It seems very likely it will be approved.
My thesis that Guernsey will not suffer any greta loss of business is based on doing a dummy exercise on where to deposit a hypothetical sum of money.
This concentrates the mind and you soon realise there are not that many alternatives that are palatable.
So, dear Guernsey remains high on the list of potential recipients of the cash. Why? Because the alternatives are not that good
True there will be a lot of selectivity and spreading of monies around various banks to ensure the best protection.
The reality of depositing money is that principles and indignation about the LG affair will go out of the window, and be replaced by personal need.
That’s life I’m afraid
Report abuse
Bank profits are falling substantially, this is a fact that we all know about. What I find difficult to understand is why are they backing themselves into a corner where investors will be forced to spread their investments into pathetic amounts for their own peace of mind when the outcome will mean more admin work on an already decreasing profit margin.
It all seems a bit strange. Most would think that it would be the other way round but maybe common sense has passed a lot of people by?
Report abuse
Paul says “investors will be forced to spread their investments into pathetic amounts”
£50,000 a pathetic amount!!
Plus the need to spread deposits in order to maximise protection existed before Landsnaki Guernsey was put into administration.
If spreading the risk was too much bother, then expecting the taxpayer to compenstae is a bit rich.
Report abuse
It`s to late now.Millions and millions of pounds has already left Guernsey and now investors have found that by moving their money away they are getting a much higher interest on their investments.Even some of the Building Societies in the UK are paying more than our banks.So i fear the damage has already been done by being so slow to act.Now that people have found the grass is greener, it`s gone for good.
Report abuse
Stephen John
For high net worth individuals which this island wants to attract 50,000 is pocket change. However, I agree to the ordinary man it is a significant sum. You write that it is a bit rich to expect the tax payers to bail out the investors. I think that it is a bit poor for the authorities to expect the investors to take the loss on the chin and grin and bear it. Somebody is responsible. Who is going to hold their hands in the air?
Report abuse
Paul
Let me tell you in outline form why the the Grim Reaper will not find much pickings in Guernsey.
Guernsey has suffered a dent in its reputation.
Will the “forced to save face” paying of any deficit to LG depositors help restore the reputation?
Don’t think it really matters.
Decisions would be based on what is the situation when decisions are made to invest
Hard facts and not emotions will govern decisions to invest.
The past will be considered and it will be appreciated that Guernsey’s reputational loss was the similar as any other offshore financial centre. All financial centres are seen as having lost some of their standing.
So, Guernsey goes down a notch or two in the reputational table but so di the rest. In absolute terms there is a loss of reputation but in re;ative tewrms there is no real loss.
In practice the current crisis might even work in Guernsey’s favour. Think of flying after a major accident. Who will be the safest airline? Usually the one that has just had an accident.
Investors and depositors will look at the existing market and evaluate risk. Will Guernsey be seen as a better risk than most? After the lessons of Landsbanki Guernsey, the proposed depositor protection scheme, the protection of local and non residents, the spread of AA plus rated banks on the island, the expected improved performance of the GFSC after so much justifies criticism of their performance; all make Guernsey a good place to put owns money.
There will also be the under the surface feeling that Landsbanki Guernsey depositors should have been more careful with their money and taking risks should bear that risk if things go wrong.
Cold facts and not emotion determines investing and depositing strategies
Report abuse
Stephen
I wish it was cold hard facts that determine how the financial markets and investor temperament choose their direction. A nod to the stock exchanges will highlight the blind leading the blind based on rumour and conjecture.
Report abuse
“If only Stewart Falla could have been our CM. Things would be much better allround i’m sure”
You don’t seriously believe that do you? As sad as this is for the depositors, focussing on the CM smacks of flailing about – although I accept it’s part of the human condition.
“2100 depositors won’t forget?” That’s not really much of a threat either.
Report abuse
Jackie
We are being dictated to. Things would most definately be diffrent with another CM. Prefably one that would want to sort out his or her own back yard before wandering into somebody elses to see if there is anything valuable to bring back. Lyndon Trott can organise his own life I will give him that. What has he done for the public? Other than overspend on everything and blag his way. He is bankrupting this island ad everyone seems happy to keep quiet about it. Are you his PA?
I suppose you don’t consider the outside influences that are concentrating on this island much of a threat? A couple of months from now this island won’t know what has hit it. Good I say, should have woken up sooner.
Report abuse
LT’s PA? Hardly. Do women only act as personal assistants in this island?
It seems I walked in to someone’s private party. Any offer of an alternative view being met with chauvanism, But hey, I’m a big girl. I’ll forgive you ;0
As for your broader points I don’t doubt there will be some contraction. But not as bad as you might wish on this fair isle. And some might say a bit of contraction might take some of the heat out of the economy.
I’m very positive about Guernsey’s long term future.
Report abuse
Hi everyone – It’s only just dawned on me that Stephen John is actually taking the mickey and having a good laugh at our expense so to speak.
No one with an IQ over 40 would suggest the States are competent, and things will come right.
He obviously intends to wind people up, or, he works for the Marketing Department of the States – if they have one.
Stephen – please stop coming out with blithering comments that insult peoples intelligence.
Cheers.
Report abuse
Darren
There is no need to question Stephen Johns intelligence. I know personally that he is a highly intelligent person. It is more of a case of him living in IOM where depositors funds have been protected so all of them have nothing to really complain about. Why he would want depositors to suffer I can’t answer that maybe he will. As for the comment on states members being competent some are. Highly so. Others are clowns. We need to sort out the rubish.
Report abuse
Paul
Thank you for your kind comments.
IOM? Never even been there, nor invested or deposited cash there.
Like everyone else I sympathise with the plight of depositor of LG. But, I don’t think there is a case for the taxpayer to pick up the tabs.
Wondering why so many people made such large deposits without regard of the standing of Icelandic banks is a legitimate point.
I am surprised that so many depositors in LG feel no personal responsibility for their decisions as to where to place their money. Quitr incredible.
My stance is that I don’t believe the innocent taxpayer should suffer, and not that depositors should suffer.
The puerile suggestion of winding up by Darren is just gratioustously offence and utter tripe.
Report abuse
If you are depositing your money in a bank, you expect it to be safe. If the bank was not safe it should not have been allowed to take deposits, and any deposits on its books should have been returned.
Depositing is not risk taking. The ideology that all cash is there to be ‘invested’ is a scourge. The market forces that determine that banks should outdo each other for depositors cash is extremely flawed.
Gamblers can have their dens if they so wish. Normal people want security.
You cannot blame people for depositing in a seemingly ‘competitive’ deposit bank. How are ‘you and me’ supposed to be able to understand the intricate workings of offshore subsidiary/high libor rates/leveraged debt etc etc which had blighted the lives of innocent people.
It should not be a game to leave your cash somewhere in the expectation you can pick it up at a later date. This is a systemic failure, all parts of the system are to blame, and the depostor should be given 100% of their money back.
These people were not playing roulette, they were just living. That’s the price of worshipping the greedy know-it-alls that can charm (more likely buy) the influence to alter natural prudence.
Smile and wave, that’s all these bankers do, smile and wave.
Where are the apologies?
Report abuse
Darren
If you are going to ascribe comments to me do try to be accurate.
You say “No one with an IQ over 40 would suggest the States are competent, and things will come right”
For the recors I haven’t said that nor implied it.
What I have said is that Guernsey will weather the storm for reasons to do with financial decision making and relative reputational movements.
Nothing to do with the States or my view of them.
Report abuse
Stephen
Your comments are noted.
What is a ‘recors’ just out of interest.
Your IQ has been estimated based on your ability to spell – thank you for taking this on-line test.
To imply somethine means many different things to many different people – by association you pressed me to justify my comments about the States and with your written context intimated that I was being absurd, and further, that the States were making good progress, i.e. your comment around Charles Parkinson, and comments against other posts.
Isn’t this supposed to be a ‘forum’ where we make comment on the issue and not on each other?
I wish you would talk about the issue and stop questioning peoples opinions or views as it detracts from what it is people are trying to solve / understand / come to terms with.
The financial markets are in deep manure through the greed of many and the lack of intelligence of the US Government (Sub Prime).
Finally – people have not taken Sarbanes Oxley, nor Turnbull guidance and Risk Management practices seriously and have forgotten the golden rule of operating in international markets, and that is planning for the worst possible threat (usually natural disaster, or man made – in this case US Govt).
If the financiers had planned for this they would have ensured adequate capital was reserved to meet demand should loans be drawn down.
Simple really.
On a local level Guernsey do not have an adequate financial infrastructure to recompense investors of Landisbanki.
And the States will not be underwriting the £50,000 depositor scheme, the banks will, and it is the banks that go bust, so how can investors place reliance on this in the first place.
My final post on this thread.
Report abuse
Fast Robert
Hit the nail on the head with your above comment.
Report abuse
Fast Robert
Your knowledge of basic banking seems fundamentally flawed.
When depositing with a bank, you are lending them money. They are paying you an interest rate for that loan. The interest rate being offered by the borrower reflects their level of need for your cash. If they are offering you a far better rate than others then it means that they are more desperate for your money than other banks are.
You of course expect to be paid back. As the level of interest that the bank is paying you reflects the strength of their need for your money, if they are paying well above average rates (and 7% versus 6% is a very significant premium) then that means that the risk of them paying you back is greater than the risk of another less desperate bank paying you back. If Landsbanki hadn’t needed to pay 7%-plus rates to attract money from depositors then they would not have done so.
The rate of interest payable on a corporate bond is priced according to the risk of that company not being able to repay the bondholder at maturity. The higher the risk of default, the higher the cost of borrowing to the borrower, and thus the higher the interest rate. Banks are no different.
None of this is rocket science and its all too easy for people to plead ignorance. Ignorance is no defence as financial advice is available from qualified and regulated IFAs everywhere whose job it is to advise their clients of risks and rewards.
One major problem is that too many people aren’t prepared to pay for financial advice but if they don’t understand or appreciate the financial risks of what they are investing in then they are the very people who do need financial advice.
The real crux of the issue is that the public are simply not used to seeing banks collapsing. Thankfully it doesn’t happen very often and I fear that it created of complacency about the safety of bank deposits. If there is no perceived capital risk in the investor’s mind then its human nature that the entire focus is on interest rates.
Some very harsh lessons have been learned. I doubt if such complacency re. the strength of a bank will be seen again for some years but once all this forgotten in 15 or so years exactly the same mistakes and results will occur, albeit not I suspect by the same people who have been burnt this time.
I once knew a chap who had money in Barlow Clowes when it collapsed, received a payout from the liquidator and then deposited it all with BCCI, all within a very short time period. All in the name of chasing above-average interest rates without any consideration of why those organisations were offering above-average rates.
Report abuse
Yes David.
The issue is how it is sold to the customer.
‘Depositing’ sounds safe.
‘Lending to a bank’ doesn’t.
People are ignorant, but it’s not helped by the institutions that use and encourage this ignorance. Therefore there is a moral issue.
They should state quite clearly “Please lend us your life savings in order for our corporation to deal in markets you know nothing about in order to make a profit that you will not have a share of, and will only serve to pay dividends to shareholders (if you are a shareholder then I doubt the dividend would make up for the possible loss of your life savings) and to reward the obscene risk taking of a few managers.”
Making money out of money has proven a false god. The sooner we downsize the finance industry globally into a morally accountable public utility, the better.
The trillions wasted using these old ideals will not be recovered and the worlds poor will suffer for longer and harder because of reduced investment by some corps and charities. There is no defence.
How are those hedge funds doing? £18bn lost on gambling on a car makers share price? Oops doesn’t matter?
What price that £18bn for use in public infrastructure. No doubt many pension funds will be worshipping the fund gods. Faith in a system that has failed. Quite ridiculous.
And there was Parkinsion saying the loss is nothing to worry about. Everything’s fine. Just trust the money lenders and casino players.
We are quite happy to pay trillions to failed bankers (why are they not being charged with gross mismanagement and for trashing global economics?) but heaven forfend if we borrow those amounts to repair public services and infrastructure.
We are ruled by the morally inept. Do not defend the indefensible by saying the restaurants and plumbers are doing good trade. It is, and has always been, a crass argument.
Report abuse
David hits the nail on the head in saying “One major problem is that too many people aren’t prepared to pay for financial advice but if they don’t understand or appreciate the financial risks of what they are investing in then they are the very people who do need financial advice”.
It seems incredible that so many people were willing to place significant amounts with this bank, without any real research.
Even professional people such as the Jersey chartered accountant who placed £500,000 with Landsbanki Guernsey. Just unbelievable.
Beggars belief.
Report abuse
Fast Robert
Can’t quite see the connection between your attack on the global finance world and what the Guernsey management of Landsbanki did, which seemed to be to upstream deposits to its parent.
The point I’m making is not to shoot down your broader comments, which are your opinions and will be shared by many at the moment, but to consider their relevance to whether the States of Guernsey should or should not bail out depositors in a Guernsey bank, which is after all what this particular thread is about. The Guernsey regulator can only regulate the Guernsey business and is not responsible for regulating what Landsbanki’s parent bank may then have done with that upstreamed money.
Just to make one further comment in response to yours. Its not just about how a financial product is sold, its also about how it is bought. Anybody should surely take appropriate advice before buying anything substantial, particularly when it relates to something as important as their life savings.
Report abuse
David. Your last comment is of course entirely correct. Something that is as expensive as your life savings should be investigated fully.
However there is no ‘survey’ scheme as there is in house buying, there are no easy methods of testing the hyperbole of the adverts and indded the credit rating industry’s fallibility. If something says that it will give you 7% and that you can access it after a period of time, surely that is the be all and end all.
No matter how ignorant savers were of the Icelandic model, the man in the shop surely has a DUTY to warn that things can go down as well as up. These savers were not trying to gamble on markets, they were looking for a place to keep their money, now that physical cash is outmoded, and they relied on the late twentieth century model of consumerism.
This consumerism failed them badly. Their choice was the same as buying in the sales, when in fact the ‘sale’ goods were faulty. Unless the shop has a disclaimer that there are no refunds on faulty goods then surely that consumer could get a refund?
I don’t know what small print exists on depositor contracts, but you’d think that if there was some, Landsbanki would just point a big arrow to it.
We are led to believe that consumerism is the great ideology, markets regulate themselves, proces are determined by supply/demand. Alas, as it has always been, it’s a myth and a fix.
Report abuse
Does anyone else who reads these comments wonder what stimulates a person to post comments here who apparently has not been personally affected by the collapse of the Landsbanki Guernsey branch…?
Why would such a person write at length here..?
My guess is that such a person is a very selfish and cold hearted, lonely individual who really cares little for the issue at hand and more for the opportunity to voicfe his uncaring oppinions at the expense of others emotional and financial plight..
Report abuse
Fast Robert
No its not “the be all and end all”. If you were to lend money unsecured to a family member who you knew very well, confident that you would get repaid (let’s call them “UK High Street Bank”), would you charge the same rate of interest on the same unsecured loan to somebody whom you had met once and knew nothing about (let’s call them “Icelandic Bank”) ? If “Icelandic Bank” was so desperate for your loan that it was willing to pay a much higher rate on the same amount that UK High Street Bank and you could only lend to one of them, which one would you choose ?
Your comments are noted, but at no point do you reach the stage of concluding WHO is liable and WHO if anyone should reimburse depositors.
If we accept that “the system” failed, was it the Guernsey regulator’s fault, the UK regulator’s fault, the Icelandic regulator’s fault, or the broader financial system who was at fault ?
This is of course 100% relevant to whether the Guernsey taxpayer should or should not be expected to make any contribution to the depositors.
Somebody is culpable, but if it is not a party which is capable of paying up as a result, would it be at all appropriate for the Guernsey taxpayer to cough up just because the culpable parties can’t pay up ? Wouldn’t that have the same effect as converting a “junk bond” into a “Triple A-rated” investment ?
Report abuse
Some short time ago someone suggested on this web site that the GFSC should publish the credit ratings of banks. All of this would be generally available information. After all Landsbanki itself had details of the warnings about the Icelandic economy on its web site.
This seems a very good idea as looking at the GFSC web site, I see general warnings on things such as cold call telephone selling.
Might well help depositors of the future to make better decisions.
Report abuse