Pearson-Treasury latest comment...

  • SgKZ
  • 10/10/08 31/05/09
  • a depositor
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Posted: Wed, 11/03/2009 - 17:05

Pearson yesterday stated, "We expect the Icelandic Government to support deposits in branches of Icelandic banks."

On what basis does he believe that it is likely to happen? Have the mysterious talks on behalf of the IOM by the Treasury produced anything positive that we have yet to hear about.

Would the UK Treasury like to arrange a 'funding gap' loan and then stand in our shoes if they are so sure of Iceland coming up with the goods?

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The general principle stated here is noteworthy...

  • follow_the_tao
  • 11/10/08 31/05/09
  • a depositor
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  • Wed, 11/03/2009 - 21:06

I've extracted slightly more. The whole statement, in fact the stream is well worth reading.

It is the last sentence that appeals to me. And the last sentence might be seen to crystallise the difference between the situation in the UK and the IoM. The IoM government seems to feel beholden to the industry on its Isle, I get the feeling that the industry have more clout then the Government, and when they don't feel like paying they don't. Let's think about this for a minute. Financial industry centre, do we suppose that other banks didn't have an opinion on the Iceland/Kaupthing situation? Certainly the majority opinion would have been "We're coining it, so are they, so what? But there would have been an informed current of concern. And addressing this is what I believe is the task of the regulator.

IoM is a low tax regime. The government talks as if the manx taxpayer has to pick up any additional costs incurred. Why not the businesses. It is the terms of debate that need extending. Does Mr brown really think all the companies are simply going to pick up sticks and go if the IoM follows the principle in the last sentence of the 2nd paragraph.

I remember that the chief minister of Guernsey said before the TSC that he didn't believe the taxpayer should pick up the tab for a failed bank, that this would just encourage moral hazard. Quite apart from the irony of him talking about morals in a 'low tax regime', I think he's obscuring the point. The industry pays. Otherwise we do have "privatising the gains, socialising the losses.

It's the quality of debate that is so lacking on the IoM. I hear it everytime I listen to the Tynwald. Who has the power on the IoM? It doesn't appear to be the government. Apsden's statements about depositors realing being investors sums it up, using Prof. Willem Buiter's phrase, his comments demonstrated such a degree of cognitive regulatory capture it was staggering.

This is big picture. But big picture is important. Why don't the IoMG and the treasury debate more openly. Why all the apparent secrecy, confidentiality. It isn't a particular conspiract before people start thinking I'm wandering off into paranoia land. It's like institutional racism in the Met, or Apartheid as it was in S Africa. They are so big they are not conspiracies, but both these examples have produced criminal and negligent acts.

I am not a financial professional. I'm not a government. But I know, and can debate, what is required from these bodies. It strikes me very much we, the depositors, are in a victim pays situation. And the terms of debate are depositors v manx taxpayer. This is wrong. The debate ought to be victim talking to government, government telling industry to sort out their mess.

We're missing the 600lb gorilla in the room.

"We have used the powers under the 2008 Act to protect the financial system by, as Mr. Hoban noted, transferring deposits from Bradford & Bingley, Heritable and Kaupthing Singer and Friedlander. We have also ensured that retail depositors in UK branches of Landsbanki and London Scottish have been fully compensated. All that costs money. The Government contributed by paying for the transfer of deposits or compensation when depositors stood to lose more than £50,000. We expect the Icelandic Government to support deposits in branches of Icelandic banks.

That leaves a cost, which falls on the UK's Financial Services Compensation Scheme. As my hon. Friend the Member for Keighley clearly outlined, the principle behind the scheme is that the industry mutually meets the costs of compensating retail customers for losses caused by the failure of their peers, be they deposit takers, insurers, or other firms. I did not hear any hon. Member who spoke today argue with the general principle that the industry should meet its own costs of failure.