In June the Minister for Economic Development lodged the Draft Banking Business (Depositors Compensation) (Jersey) Regulations 200- - for later States debate. These Regulations are being formally scrutinised at present.
The Report accompanying the draft Regulations contains the following unconditional sentence: “The DCS would provide full protection for private individuals up to a maximum of £50,000 per person, per Jersey banking group, whether or not the depositor is resident in Jersey.”
Unfortunately this sentence is not correct. A concerned depositor would need to search diligently to find the caveat that should have been reported. It’s on page 26 (of 40) of another report - by Oxera - titled “Deposit Guarantee Arrangements for the States of Jersey” and dated May 2009.
This obscure paragraph explains that a DCS “cannot be designed with a view to protect depositors against large ‘systemic’ failures.” Oxera report that this fact “has been recognised explicitly in the UK” but this so-called explicitness is, in fact, only true because of the 2008 investigations by the House of Commons Treasury Committee. That Committee reported, “Although the [UK] Financial Services Compensation Scheme is portrayed as offering protection to the depositors of all financial institutions, examination of its funding indicates that it would not be able to cope with the failure of a medium-sized, let alone a major, financial institution.”
And Jersey’s draft DCS suffers from similar funding problems. The Oxera Report carefully avoids stating the figures of relevant bank deposits and how they are spread between banks. But arithmetic discloses that the maximum available total compensation of £100,000,000 in any one year may be a tenth (or less) of what would be required if only one major bank in Jersey failed and 100% compensation was sought by individual depositors of that one bank up to a maximum of £50,000 each. A compensation shortfall of, maybe, £1,000,000,000 – in Jersey - if a major bank fell.
So Jersey is following the UK: both are now “portraying” 100% DCS compensation (of up to £50,000 each) that cannot be delivered.
The UK (and other countries whose banks have a presence in Jersey) will (no doubt?) bail-out those banks that are “too big to fail.” Iceland did not have the necessary bail-out resources. Ireland is in grave difficulty over resources for that purpose. The UK is also straitened.
But there’s an additional worry about Jersey’s DCS in circumstances where Jersey’s major-bank-depositors can rely not on Jersey’s DCS but on a bail-out by a major nation like the UK. If the UK (as is happening at present) needs to bail out a major UK bank – and if Jersey benefits hugely from such a bail out – will the UK seek a contribution from Jersey?
And would such a contribution be fair, reasonable and just?
That’s where Jesus Christ’s words in bold above kick in. It looks as though Jersey depositors have already benefitted hugely from the UK bail out of too-big-to-fail RBS and Lloyds TSB/Halifax. Does Jersey rightly owe a debt to the UK?
If so, given the arithmetic in the Oxera Report, it looks as though a claim might be even greater than Jersey’s Strategic Reserve of £507,000,000....
“Come to terms with your accuser quickly....” Jesus spoke these words at the very beginning of his public service. He was speaking about the debt that all humankind owes to their Creator – a debt that relates not only to what I owe for what I have received in myself but also for what I owe for all Creation outside myself (food, sunshine) that I utilise and enjoy.
He says to me – to us, “Come to terms with Almighty God quickly [otherwise] you will never get out of prison until you have paid the last £50.”