The Financial Supervision Commissions’ flashy 25^th birthday Annual Report 2007/8 appears to identify exactly the type of problem currently being experienced by Kaupthing Singer Friedlander (IOM) Ltd.

It describes three types of banking operations, one of which that takes deposits from international clients and ‘lends’ the deposits to the parent bank.

This is identified as potentially problematic which “is the principle reason why the Commission operates a policy of only licensing banks which are financially very sound and able to provide full support to their local operations at all times.”

The document goes on to say: “However, in light of the turbulence in financial markets during the period the Commission has been considering carefully its policy towards cross-border dependencies which banks may have on their parent groups.”

Liquidity and where funds are held is discussed and whether an element of ‘ring-fencing’ should be introduced for subsidiaries.

The Commission recognised that there was the possibility of a “bank finding itself moving from a normal, going-concern environment into something approaching a crisis, extended liability positions can suddenly crystallise as immediate obligations. How adequately to plan for such a transformation is provoking much thought in wider circles.”

An amendment, in December 2007, to the ‘Banking Code’, introduced in 2005 and the implementation of Basel 11 is given as the main action taken in response to this concern but it would appear that this response was inadequate.

A large number of questions are due to be asked, and emergency motions debated, by our politicians when Tynwald sits next week; but it is interesting to note that when the ‘Banking (General Practice) Regulatory Code was approved by Tynwald, in December 2005, and the amendment in December 2007, only Clare Christian MLC availed herself of the opportunity to ask Treasury Minister, Alan Bell MHK a question.

She said she found confusing a section, on capital requirements, as what constituted a ‘minimum’ and inquired whether there was a conflicting statement.

Mr Bell rather patronisingly responded by saying there was little confusion in the banking community.

The two items were effectively passed on the nod in less than 5 minutes.

Perhaps if a few more questions had been asked then it might have avoided the need for ‘emergency debates’.

Meanwhile Mr Bell appears to have softened his stance on the necessity of having ‘active’ members of the ‘finance industry’ sitting as Board members of the FSC and IPA; and on Manx Radio’s Sunday Opinion programme said he was giving the matter some more thought.

His previous stance that members need up to date knowledge and experience does not really stand scrutiny.

It is a bit like saying to have an effective police force it needs to be run by active criminals.

(Come to think of it, though, a few people have claimed that some policemen, employed by the force in Mr Bell’s time as Home Affairs Minister (and to be fair others too), were no better than the criminals they were supposed to be chasing.)

In the case of the FSC at least four members appear to be directors of ‘licensed’ businesses that they themselves regulate.

The Chairman of the IPA would appear to have a similar conflict.