Guernsey Press

£72m. liquidity schemes for deposit protection

THE Guernsey scheme offering protection for deposits in the event of a bank defaulting is expecting two liquidity facilities totalling £72m. with the States to be formalised this year.

Published
Guernsey Banking Deposit Compensation Scheme board chairman Rick Denton.

The Guernsey Banking Deposit Compensation Scheme has also increased the administrative levy on locally licensed banks from £6,250 to £9,000 per annum for the year ending 31 December 2018, following positive consultation with the Association of Guernsey Banks.

The moves are designed to mitigate the impact of a reduction in the number of banks licensed locally, which has reduced the base from which the scheme can charge administrative levies and, in the event of a default, compensation levies.

The annual report, for the year ended 31 December 2017, also highlighted how work is under way to speed up processes and procedures in the event of a default and to reduce costs – as well as working with international partners.

In 2017, there was a £10,788 ‘erosion’ of the scheme’s reserves compared to £2,256 in the previous 12-month period. However, the board considered this reasonable given increased investment in improvement projects, with the remaining reserves considered to be a ‘satisfactory’ position for the scheme’s continuing operation. In 2017, income from the administrative levy totalled £168,820 while administrative expenses were £179,639.

The scheme covers deposits by individual retail depositors, retirement annuity trusts, registered charities and children’s savings accounts and provides compensation up to £50,000. It was established in 2008, at the height of the global financial crisis.

In the scheme’s latest annual report, board chairman Rick Denton said: ‘The number of licences issued to banks continues to fall, from 25 at the start of 2017 to 24 as at 31 December 2017, with an additional three banks expected to surrender their licences by the end of 2018. Indeed, since the inception of the scheme, the number of licensed banks in the bailiwick has fallen from 45.’

Consolidation led by the banks’ overseas headquarters and changes to regulatory requirements –including ring-fencing in the UK – had contributed to the fall. ‘The implications in respect to this reduction have been reviewed by the board and the scheme has begun to develop plans to mitigate the impact to the scheme,’ added Mr Denton.

‘To ensure the scheme has monies available in the event of a bank default and any time delay in receiving funds levied from other Guernsey-based banks, the scheme has arranged for two liquidity facilities totalling £72m. with the States of Guernsey. These facilities are agreed in principle and will be formalised during 2018.’

The scheme’s chairman also said: ‘The administrative levy for the year ended 31 December 2018, following consultation with the Association of Guernsey Banks, increased by £6,250 to £9,000 per annum. This increase was necessary to manage the impact on the scheme’s budget of a reduced number of licensed banks that contribute to the scheme’s running expenses.

‘The budgeted administrative income for the scheme is now in line with that proposed in the 2008 policy paper before inflation and allows for some increased spend on projects for improvement.’