Post-funded scheme needed to stay competitive
Monday 29th November 2010, 2:29PM GMT.
MAINTAINING Guernsey’s competitive edge was at the heart of the debate on whether to change the depositor’s compensation scheme just two years after it was introduced.
Commerce and Employment proposed scrapping the pre-funded element of the system and making it fully post-funded.
But its members confirmed that banks were not looking to leave at the moment.
Chief Minister Lyndon Trott (pictured) said the independent Depositor Compensation Board believed it was the right decision to change, there was support from the regulator, the Guernsey Financial Services Commission, and bankers.
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The GFSC in fact were fairly neutral on the amendment and of course the banks want a post funded scheme as it meant that they did not have to pay into it until something went wrong and they are banking on the fact that with tighter regulations, it is unlikely another bank will go down.
What the original article in the Press didn’t cover was the fact that for two years now since the States resolution in November 2008, Commerce and Employment under Deputy Carla McNulty Bauer have failed to carry out that resolution and gone their own way. By the time of this debate £4 million should have already been paid into a prefunded scheme, in fact, not a penny had been paid in by the banks, and after some questioning in the States by deputy Guille, Deputy McNulty Bauer admitted that , should a bank go down tomorrow the Guernsey taxpayer would be responsible for coughing up £20 million towards paying back depositors (although this money would hopefully be returned over time). Let us hope Scrutiny are going to carry out a full inquiry into why a States Department failed to carry out a States resolution and in not doing so put taxpayers money at risk.
The other worrying element was raised by Deputy Honeybill. Now that the amendment to a post funded scheme has been passed, it appears that there is no legislation to enforce the banks to payup should another bank go down and it is being taken on trust that banks will automatically pay up should that happen. Deputy Honeybill asked Deputy Carla McNulty Bauer if legislation would be put in place to cover this. The resulting fumbling answer did by no means answer the question adequately.
During the past year or so the LGDAG have written to both the DCS Board and Commerce and employment asking pointed questions, we were fobbed off every time, even told to consult an advocate. It appears that States deputies were no wiser and that the right hand doesn’t know what the left is doing.
I apologise for the length of this, but Guernsey Government is far from transparent.
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Maintaining Guernsey’s competitive edge in regard to a Depositor Compensation Scheme, is a total non starter in terms of what is currently on offer to local depositors who wish to deposit their savings.
The Guernsey Scheme, implemented in unprecedented haste shortly after the collapse of Landsbanki Guernsey, just cannot compete with the equivalent UK Scheme, and, the shortly to be introduced recommendation of the EU to increase the limit to 100,000 euros.
Changing the Scheme to a post funded scheme from a pre-funded scheme is more about the banks driving the DCS and putting pressure on the Guernsey government to implement such changes.
The Guernsey DCS has spent over a quarter of a million pounds in administering the Scheme in its first year and questions need to be asked in just how that money has been spent and just what have they achieved.
Depositors need to have the confidence of a ‘depositor led Scheme’ that will achieve the best possible outcome for them should the Guernsey bank they deposit with, fails.
No one depositor can afford to have total confidence in a Guernsey registered bank or the Guernsey government until all of the relevant questions about the current DCS are answered in a honest and transparent way.
Guernsey needs a ‘Depositor Guarantee Scheme’that will allow it to be competitive and be depositor led, the first two years of this current Scheme has done little to instill depositors with the confidence they are desperately looking for in depositing their diminishing savings here in the Island.
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Of course another aspect of this debate was the misleading of the States assembly by the Chief minister when he stated;
Sir two things have brought me to my feet, the first is Deputy DeLisle’s comments, he says that Guernsey has failed miserably its depositors, well sir I felt obliged to defend the actions of the Royal Court appointed Administrators, whose job it is to deal with this matter, and in doing so remind this assembly that they have suggested that depositors are likely to recover in excess of 90 pence in the pound, and I say in excess because I am aware that there are some commentators who have followed this closely who believe that that figure may in fact exceed 100%.
And he further stated:
I did say approaching 70pence, it is 67.5 pence in the pound so far and expectations are that that number will be , as I say, close, if not , in the views of some commentators, greater than 100%. Lets be very clear about that, the situation is nowhere near as bleak as Deputy DeLisle seeks to paint.
The Chief minister is well aware of the Administrators figures of a likely return of 85%-91% depending on market conditions and this is likely to take a further two years or more. For him to come out with a contrived figure of more than 100% from some commentators, without proof, is a deliberate attempt to mislead the states assembly, especially as he repeated it twice.
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