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| OFFSHORE BANKING DEPOSIT
GUARANTEES, INSURANCE AND PROTECTION |
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| The
Isle Of Man
All
banking licence holders are required to participate
in the Depositors Compensation Scheme. The Financial
Services Commission is the Scheme Manager.
The
first GBP50,000 of individuals' deposits is 100% protected
under the Compensation of Depositors Regulations 2008,
approved by Tynwald on October 9, 2008, with immediate
effect.
The
scheme was originally set up in 1991, and extends to
all licensed banking institutions, except those listed
by name. Deposits were protected up to 75% of the first
GBP20,000 per depositor and the Scheme extended to the
sterling equivalent of foreign currency deposits. Compensation
was not available with regard to secured deposits or
deposits which had an original term to maturity of more
than five years.
The
Scheme was successfully operated in respect of the default
of BCCI which had a branch in the Isle of Man.
In
October, 2008, the Isle of Man's Treasury Minister,
Allan Bell, announced that the island's deposit protection
limit would be increased to GBP50,000 for both local
and international individual depositors.
Making
his announcement the Minister commented: "Financial
systems around the world have entered uncharted waters,
and the Isle of Man cannot expect to be immune from
the implications of what is happening elsewhere.
"However,
we can take comfort from the diverse nature of our economy
- and the underlying strength of our finance sector
and banking system - which provides us with a broad
and robust platform of business activity.
"We
also have a strong and prudent regulatory system, regularly
and independently reviewed. The steps that the Island
has taken over the years to achieve an internationally
endorsed regulatory system also stand us in good stead,"
he explained, going on to state:
"Another
strength is the good working partnership between Government
and the business sectors, which means that together
we can keep a close eye on developments and deal with
any issues that arise.
"Last
but not least, the Isle of Man has a track record of
meeting international challenges and change with resilience
and resourcefulness. That track record should give us
confidence in these uncertain times," he added.
The
minister continued further: "However, I am also
aware that people both on and off the Island are looking
to me for leadership and clarity on the specific actions
we intend to take. Therefore I am announcing today that
I intend to raise the limit of protection for deposits
of individuals to a maximum of 100% of GBP50,000.
"In
keeping with our position as a well-respected small
international finance centre, this new level will apply
to all individuals wherever resident, not simply to
Island residents."
Mr
Bell will seek Tynwald approval to the revised protection
limit at its October sitting. Mr Bell indicated that
he recognised the importance of the views of banks in
this matter and confirmed that he would continue the
consultation with the Bankers’ Association on
the detailed aspects of the scheme in the period up
to the October Tynwald.
The
Minister concluded by emphasising that he believed his
new measures would give further confidence to depositors,
with the limit expected to cover approximately 95% of
all individuals’ deposits. Protection would apply
per depositor, per bank. Deposits not placed by individuals
would not be covered.
"We
have had a Depositors’ Compensation Scheme in
place since 1991, which for most of that period was
equivalent to or better than the situations in many
other countries. With these changes we will continue
to have a scheme offering excellent real protection
to individual depositors, wherever they live."
he concluded.
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| Guernsey
In
late October, 2008, Guernsey took a step towards introducing
a Depositors’ Compensation Scheme with a compensation
ceiling of GBP50,000, Guernsey Finance announced.
The
technical group working on the introduction of a scheme
met for the second time. This meeting was to consider
an analysis of the deposit base of all banks in Guernsey,
which is essential in assessing the potential costs
of any scheme.
The
group was chaired by Treasury and Resources Minister
Charles Parkinson and includes representatives of the
Commerce and Employment Department, the Guernsey Financial
Services Commission (GFSC) and the Association of Guernsey
Banks (AGB).
Deputy
Parkinson said: “I believe that we have made significant
progress towards introducing a Depositors’ Compensation
Scheme with a compensation ceiling of GBP50,000, as
is currently the case in the UK.”
The
Scheme came into force in November. From 26 November
2008 all retail deposits are protected by the introduction
of the Guernsey Banking Deposit Compensation Scheme.
The Scheme has been prepared rapidly in response to
recognition by the Commerce and Employment Department
and the Policy Council of the urgent need to introduce
such a measure.
Those
with deposits in Landsbanki Guernsey are not covered
by the Depositor Compensation Scheme nor covered under
the UK compensations scheme, since administrators took
over on October 7 and any Guernsey scheme would not
be retrospective. However, the administrator has announced
an interim payment of 30p in the pound and made clear
that the prospects for further repayments are good.
Charles
Parkinson has stressed that Landsbanki Guernsey’s
assets exceed its liabilities and therefore while he
cannot say for certain that depositors will get all
of their money back this remains a strong possibility.
The
Minister has expressed sympathy with the concern of
depositors and highlighted that the States of Guernsey
is doing everything it can both locally and internationally,
including working at a high level with the UK Government,
to ensure that the interests of Landsbanki depositors
are represented in meetings with the Icelandic authorities.
The
Guernsey Financial Services Commission has also written
to the controllers of Landsbanki Guernsey’s parent
bank – the Icelandic regulators – pressing
for the bank to honour its commitments to meet the Guernsey
bank’s liabilities, including depositor liabilities.
The key elements of the scheme are:
- The
scheme covers all individual retail depositors, wherever
they live.
- The
scheme provides compensation of up to GBP50,000 per
person per licensed bank, no matter how many accounts
they have with that bank.
- The
scheme will pay compensation within three months of
a bank failure.
- The
scheme will be operated by an independent board which
will be separate from both the Guernsey Financial
Services Commission and the States of Guernsey.
- The
maximum amount of compensation is capped at GBP100
million in any 5 year period.
- The
scheme will be funded by a combination of insurance
and a levy on the banking industry in the event of
a bank failure, taxpayer’s funds will not be
involved.
The
scheme was developed by a technical working group which
included representatives of the Association of Guernsey
Banks. Several of the proposals in the scheme are innovations
specifically suited to Guernsey’s diverse banking
industry.
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| Jersey
Jersey
does not yet have a deposit insurance scheme.
Jersey's
Chief Minister and the Ministers for Treasury and Economic
Development announced in early October, 2008, that in
the face of the ongoing global financial crisis, there
is a need for further assurances for Island residents
who are understandably concerned about the safety of
the deposits they have placed with banks on the island.
With
this in mind, and based upon their confidence in the
strength of the banking system in the island, they are,
subject to the final approval of the States, giving
a guarantee that residents’ deposits will be fully
protected.
The
confidence of the ministers is based upon the fact that
the banks which operate in Jersey are all branches or
subsidiaries of parent banks that are in the world's
top 500. It is further strengthened by the fact that
over 90% of Jersey resident deposits are with banks
in the world’s top 100 whose home countries, almost
without exception, have pledged to support them.
The
Financial Services Commission is approaching the home
countries concerned, to seek to ensure that the support
offered to banks extends to the Jersey branch or subsidiary.
To
cover the possibility that the support of the parent
bank and its home country is not forthcoming, the ministers
are to recommend to the States that the bank deposits
of island residents should be fully protected.
As
far as more general depositor protection is concerned,
the Economic Development Minister has already announced
an urgent, comprehensive review, in which the finance
industry and the Financial Services Commission will
be fully involved.
The
authorities will await the outcome of this review before
deciding what kind of protection would best suit Jersey
in the long term.
The
ministers said that they are determined that both now
and in the future, the States will take "whatever
steps are necessary" to maintain confidence in
Jersey as a sound and safe international finance centre,
and to protect the people of Jersey.
The
ministers added that Jersey and Guernsey have been working
closely together on this issue and will continue to
do so.
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| Hong
Kong
Hong
Kong's Deposit Protection Scheme is run by the Deposit
Protection Board, which is a independent and statutory
institution formed to manage and supervise the operation
of the Scheme. Until 2008 the maximum protection amount
of deposit was HKD$100,000.
In
October, 2008, the Financial Secretary, John Tsang,announced
new measures to support confidence in the Hong Kong
banking system:
- First,
the use of the Exchange Fund to guarantee the repayment
of all customer deposits held with all Authorized
Institutions in Hong Kong following the principles
of the existing Deposit Protection Scheme, but including
Restricted-Licence Banks and Deposit-Taking Companies
as well as Licensed Banks.1 The guarantee applies
to both Hong Kong-dollar and foreign-currency deposits
with Authorized Institutions in Hong Kong, including
those held with Hong Kong branches of overseas institutions.
It will cover the amount of deposits in excess of
that protected under the Deposit Protection Scheme.
- Secondly,
the establishment of a Contingent Bank Capital Facility
(CBCF) for the purpose of making available additional
capital to locally incorporated licensed banks, should
this become necessary.
Both
measures took immediate effect and will remain in force
until the end of 2010, when a decision will be taken
in the light of international financial conditions on
whether they should be extended.
Mr
Tsang stressed that he did not expect that the new arrangements
would need to be triggered, since the Hong Kong banking
sector was fundamentally sound.
Commenting
on the measures, the Chief Executive of the Hong Kong
Monetary Authority, Mr Joseph Yam, said that these were
precautionary and pre-emptive measures designed to further
strengthen confidence in the local banking system. "The
banking sector in Hong Kong continues to be healthy
and robust, with capitalisation well above international
requirements. Public confidence in the banking system
remains strong. However, events around the world in
recent weeks make it prudent for us to introduce these
arrangements to bolster confidence and safeguard banking
stability. The measures are also consistent with global
efforts to support financial stability," Mr Yam
said.
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| Switzerland
Under
2008 there was no overall deposit protection scheme
in Switzerland.
Government-owned
Cantonal banks offer 100% deposit insurance to their
clients.
Swiss domiciled banks have a private agreement regulated
by the Swiss Federal Banking Commission under which
they commit to insure the first CHF30,000 of individual
deposits, but there are some conditions which may compromise
this insurance is some circumstances.
In
November, 2008, the government seemed to take responsibility
for this scheme, announcing that it would increase the
amount protected to CHF80,000. |
| Liechtenstein
In Liechtenstein the first
EUR20,000 of bank deposits is guaranteed under a scheme
run by the bank themselves.
Article
7 of the Liechtenstein Banking Act requires banks to
ensure sufficient protection of deposits and investments
at banks, either by creating their own institutions
or by participating in foreign guarantee schemes.
The Liechtenstein Bankers Association (LBA) decided
to offer its own solution. The LBA
guarantee system centres on the "Deposit Guarantee
and Investor Protection Foundation of the Liechtenstein
Bankers Association". This is an autonomous foundation
under Liechtenstein law founded by the LBA. The Foundation
has assumed the obligation, in the event of insolvency
or bankruptcy of a bank, to pay compensation up to the
legally specified maximum to the bank's clients. The
Foundation is able to fulfil this obligation up to a
maximum of CHF 300 million at any time, because all
of its Member Banks are in turn required to make contributions
to the Foundation up to a contractually agreed maximum
amount. The contribution of each Member Bank is assessed
in accordance with the volume of deposits and investments
that would be guaranteed by the system if the bank were
to become insolvent.
Not
guaranteed, however, are deposits that are neither in
CHF nor any EEA currency. Deposits primarily mean current
account balances. If a client has several accounts at
a
bank, or if the client additionally has a share of a
joint account, then the upper threshold does not apply
to each account separately, but rather to all the accounts
added together.
In addition to deposits, investments at banks are guaranteed
up to the same amount. These investments include securities
and similar instruments. However, this guarantee is
unlikely to play a major role in practice, since in
the event of bankruptcy of the bank, the entire custody
account of a client will be separated out of the estate
exclusively for the benefit of the client.
If, pursuant to bankruptcy or a moratorium on debt enforcement,
a so-called "guarantee case" arises, the Foundation
immediately informs the potential claimants through
publication in the daily press and on the website of
the Foundation. Both the Foundation and the affected
bank will have fact sheets available containing the
necessary information, along with the registration forms.
Properly submitted and reviewed claims of depositors
and investors will be paid out by the Foundation within
three months. In return for payment, the depositors
and investors cede their claims vis-à-vis the
bank to the Foundation. The Foundation may
then assert the ceded claims with respect to the bankruptcy
of the affected bank.
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| Andorra
Andorra
does not have formal deposit insurance scheme. However,
a 1995 Law regulating bank reserves used to guarantee
deposits requires that all banks participate in a guarantee
fund administered by the Andorran National Financial
Institute intended to ensure solvency for Andorran banks.
According
to the law, banks must deposit on behalf of the government
2.25% of their assets net of capital and interbank deposits.
The banks do not receive any remuneration for funds
placed on behalf of the government, but the government
receives the benefit from investing the funds. The funds
are deposited in banks, and would be available to facilitate
resolution of a troubled financial institution.
It
is not clear how the guarantee fund would be used in
the event of failure of an Andorran bank. |
| Bahamas
Bank
deposit insurance in the Bahamas was established by
the Protection of Depositors Act, 1999. The Act allowed
for the establishment of a Deposit Insurance Fund for
the protection of depositors and allowed for the establishment
of a Deposit Insurance
Corporation to manage The Fund.
Deposit
means "the unpaid balance of money or its equivalent
received or held by an institution from or on behalf
of a person in the usual course of business and for
which the institution has given or is obliged to give
credit to that persons chequeing, savings, demand or
time account for which the institution has issued a
certificate, receipt, cheque, money order draft or other
instruments in respect of which it is primarily liable.
Savings accounts, chequing accounts, certificates of
deposit, guaranteed investment
certificates, travellers cheques, money orders, and
certified drafts of cheques are covered.
The
insurance applies per depositor and per institution
up to a limit of Bahamian Dollars 50,000. The insurance
applies to all types of depositors.
The
Central Bank of The Bahamas is responsible for the administration
of the Deposit Insurance Corporation (DIC), which is
one of the 25 founding members of the International
Association of the Deposit Insurers (IADI). Established
30th September 1999, through the enactment of the Protection
of Depositors Act, 1999, the DIC is committed to the
implementation of international best practices and standards
and, as established under Section 3 of the same Act,
is the Manager of the Deposit Insurance Fund.
Pursuant
to Section 4 of the Act, membership in the Fund is compulsory
for every institution conducting banking business wholly
or partly in Bahamian dollars, and licensed under the
Banks and Trust Companies Regulation Act. As of April
2nd, 2007, there were fourteen member institutions in
the Fund: Ansbacher (Bahamas) Limited; Bank of The Bahamas
Limited; Bank of Nova Scotia Trust (Co.) Bahamas Limited;
Citibank, N.A.; Commonwealth Bank Limited; Fidelity
Bank (Bahamas) Limited; Fidelity Merchant Bank &
Trust Limited; Finance Corporation of Bahamas Limited;
FirstCaribbean International Bank (Bahamas) Limited;
FirstCaribbean International Finance Corporation (Bahamas)
Limited; Royal Bank of Canada; Royal Bank of Canada
Trust Company (Bahamas) Limited; SG Hambros Bank &
Trust (Bahamas) Limited; and Scotiabank (Bahamas) Limited.
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| Gibraltar
Under
the Deposit Guarantee Scheme Ordinance, 1997, a deposit
protection policy was put into effect in 1999 by the
Gibraltar Deposit Guarantee Board in line with EU directives.
It is a condition of a bank's licence that the bank
is a member of the Scheme. A branch of an EEA bank can
also 'top up' into the Scheme where this offers more
advantageous compensation than that of its home State.
Similarly, branches of Gibraltar banks operating in
other EEA States (none at present) can 'top-up' into
that State's scheme. These branches may withdraw from
the Scheme by giving six months notice but will still
be liable to pay any contributions should another bank
fail between the date of the notice and the expiry of
the six months. Branches of non-EEA State banks are
also required to participate in the Scheme where its
home country does not offer equivalent protection.
The
Gibraltar Financial Services Commission (FSC) reminded
depositors in the jurisdiction's banks in October, 2008,
that they are protected by the deposit protection arrangement
in existence in the jurisdiction.
The
FSC said that whilst the Rock is well placed to withstand
most of the current banking crisis striking Europe and
the United States, savers should nevertheless be made
aware of these deposit protection arrangements.
"With
the present financial situation being so prominent in
world news events, it is normal for depositors to show
a level of concern about the security of their deposits,"
the FSC said in a statement.
The
Gibraltar Deposit Protection Scheme covers 90% of a
bank's total liability to a depositor, subject to a
maximum payment to any one individual of GBP18,000 (or
EUR20,000, if greater). A bank's total liability to
a depositor is the aggregate of all accounts in the
name of that depositor, including the depositor's share
in a joint account or a client account. Joint accounts
are normally divided equally between account holders.
However,
a number of deposit-takers operating in Gibraltar do
so as branches of UK banks or building societies. In
these cases, the deposits are covered by the UK Financial
Services Compensation Scheme, which, as of October 7,
guarantees deposits up to a limit of GBP50,000. These
branches include Barclays Bank PLC, Leeds Building Society,
Lloyds TSB Bank plc, Newcastle Building Society, and
Norwich & Peterborough Building Society
Deposits
with all other banks are covered by the Gibraltar scheme.
"The
FSC would like to reassure the general public that it
is closely monitoring developments in the financial
markets and does not expect these arrangements to have
to be brought into effect," the statement said.
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