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Deposit protection – covenant or proposal?

And he [Jesus Christ, AD 33, Jerusalem] took a cup, and when he had given thanks he gave it to them, saying, “Drink of it all of you, for this is my blood of the covenant, which is poured out for many for the forgiveness of sins….” Matthew 26: 27-28


These are serious days for bank depositors – very serious indeed.


The daily newspapers – indeed, all media sources – are being examined so as to obtain the information that will tell each particular depositor whether his own deposit is “safe”. And nervousness about the safety of “my” deposit has led many Jersey folk to withdraw money from “my” bank and place it in another (safer?) bank, or into UK Government-backed deposits like National Savings Income Bonds. The Bank of England has been providing “liquidity” to banks at an unprecedented level. What does that mean? Simply this: when Jersey (and other) depositors (like me) have withdrawn deposits from my bank, my bank has not had enough cash to pay over the deposit to my (new, safer?) bank – so the Bank of England has lent (provided liquidity to) my bank the billions needed by it.


But that has not sufficed because the belief has gained credibility that certain (most? all?) banks not only lack “liquidity” (sufficient cash to repay depositors who want their money back immediately) but also lack enough assets to repay in full all depositors eventually. Why aren’t the assets sufficient? Because the assets are not worth what the banks paid for them – now that the banks are valuing them with realism and without optimism.


Who, then, will repay “my” deposit?        In law, I can only look to my bank. My bank has contracted to repay my deposit. But my bank (probably) can’t repay me in full......


I need another party to come in and contract with me and say to me, “I will repay your deposit.”    That’s where the Chief Minister comes in.


Under Jersey law a contract between two parties is only effective if there is “cause” between the parties. “Cause” is a French word that is similar to – but not the same as - “consideration” in UK law. Without “cause” or “consideration” a contract is not legally valid, unless.....


When Jersey’s Chief Minister issued a Press Release last week about Depositor Protection it was important to “me” that the deposit protection contract with “me” either had “cause” or “consideration” or was somehow valid without that.......


When a contract has no “cause”, no “consideration”, it is often called a “covenant”. A “covenant” is a one-sided contract with only one signature; it has to be entered into by that “one-side” in a manner that makes it beyond any doubt that the one signatory is really, really committed.


The Chief Minister’s Deposit Protection News Release starts with the words, “There are two separate proposals....” Not a covenant then. Not a contract. No validity in law.


But see above. Jesus Christ, at a meal with his key followers on the Thursday night in Jerusalem, the day before he was executed as a criminal, entered into a covenant with them.


This covenant was entered into in a “beyond doubt” manner because the next day, Jesus gave his life for them, taking their place - the place of sinners - on their behalf.  He did not require any “cause” or “consideration” – he offered them himself. And, as Matthew reports, he “gave [the cup] to them”. A real covenant – to save them alive, not merely their deposits.


Why was it one-sided?   Obvious really: it needed to be one-sided because the beneficiaries had nothing to offer. The covenant  was “for the forgiveness of sins” – for the forgiveness of the sins of men who sinfully fled from having anything to do with Jesus of Nazareth.


They had no assets, no funds, no deposits.

‘Money is like muck, no good unless it is spread.” (Sir Francis Bacon, English statesman and philosopher, 1561-1626)
‘The covenant is a rock foundation to build on for life or for death.’ (C H Spurgeon, Pastor and author, 1834-1892)
Richard Syvret

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