The Manx Herald asked Michael Weldon, Head of Banking Supervision at the FSC, how many IOM license holders would be in a position to continue trading if the ‘parent’ ceased to trade. He rather hesitantly replied that “many would be in difficulty”.

The UK Financial Supervision Authority (FSA) has been under pressure, in the last week or so, to release information about more extreme stress tests conducted on UK licensed banks and building societies; but has steadfastly refused to divulge the results.

This has led financial commentators to express the view the only reason for the reluctance to publish is they make pretty uncomfortable reading; and, therefore, may affect customer confidence.

Clearly the FSA and, even more so, the UK Treasury - who have already had to underwrite various banks with billions of pounds of taxpayers’ money – want to avoid adding to their problems by eroding confidence even further.

However, as the vast majority of the deposit takers licensed in the IOM are either branches or subsidiaries of British, Irish, Spanish and South African banking groups etc, customers of the IOM businesses are also exposing themselves to the ‘group risk’.

It has to be remembered most of the deposits, made in the IOM, end up in the ‘parent’s treasury’; so it makes the IOM based business highly reliant on the ‘parent/group’ continuing to trade in order to meet its own liabilities.

The collapse of KSF (UK) has clearly demonstrated what effect a bank collapse in another jurisdiction can have on the group business in the IOM: i.e. a ‘profitable’ bank also ends up collapsing as it can not get its hands on the cash it needs to keep trading.

And it is worth noting KSF (IOM) had far less exposure to the ‘group’ than many other IOM based depositor takers currently have to their group.

The Manx Herald asked Michael Weldon, Head of Banking Supervision at the Financial Supervision Commission (FSC), how many IOM license holders would be in a position to continue trading if the ‘parent’ ceased to trade. He rather hesitantly replied that “many would be in difficulty”.

However, in respect of British banks, he pointed out, despite all the difficulties, none have had a problem yet, in the sense no depositors with them have lost any money.

Whilst accepting this is true, so far, it was then put to him - given the experience with KSF, the ongoing uncertainty with Irish banks, and a not to be totally dismissed risk to British banks – the FSC should perhaps be doing more to protect IOM customers.

He offered the assurance the FSC is not “burying its head in the sand”, in respect of the turbulence still affecting markets, and is not just hoping for the best; and, added, the 2009 Annual Report, expected soon, will give more details of how they have reacted to this crisis.

He also maintained the FSC is “supervising banks in a way most appropriate”; and although the Manx Herald hopes that means substantially reducing IOM licensed deposit takers exposure to country and group risks – we have our doubts it does.

This is because the FSC’s key advice to existing and future depositors remains: “Do not put all your eggs in one basket”.

Whilst we agree this is eminently sensible advice – we have to ask: why then are the banks allowed to put all their eggs in one basket?

It is totally unsatisfactory for the FSC to expect ordinary folk - putting a few quid a way, from their wages, in a savings account – to regularly scour the financial press, and digest complicated annual company accounts, in order to conduct their own ‘due diligence’ on all our financial institutions.

If the public is expected to go to those lengths why do we bother with the expense of regulatory and supervisory bodies – we may as well do away with them if we have to replicate everything they do ourselves.

All the public wants to know is: when I put my money in this bank for safe keeping, I can get it out again when I need it; because the FSC has done the job - I thought they were being paid for - to make sure that is the case.

Surely that is not too much to ask; or is it?

Footnote:

You may recall the Treasury Minister, Allan Bell, among others, has been very bullish, in the last few months, about the level of deposits in the IOM, undoubtedly trying to give the impression the KSF ‘affair’ has had little, if any, impact.

Statements were made to the effect deposits had increased during the year, and whilst the Manx Herald didn’t doubt they may have increased pre October 2008, we were telling people to wait until the figures post October were published to get the true picture.

The latest figures were released by the FSC on the 29^th May and, as we were expecting, there has been an outflow of deposits since November 2008.

Deposits (net of local inter-bank placings) with Isle of Man offices of Isle of Man banking licenceholders

Deposits decreased by £1.21 billion (-2.11%) to £56.08 billion between 31st December 2008 and 31st March 2009.

Deposits in the year to 31st March 2009 increased by £3.72 billion (7.10%) on the corresponding figure as at 31st March 2008.

Deposits (net of local inter-bank placings) with Isle of Man banking licenceholders, including those held with overseas branches of Isle of Man incorporated banks

Deposits decreased by £3.01 billion (-4.30%) to £66.95 billion between 31st December 2008 and 31st March 2009.

Deposits in the year to 31st March 2009 increased by £1.36 billion (2.07%) on the corresponding figure as at 31st March 2008.

The Manx Herald has been informed by several KSF (IOM) depositors, having talked to friends, relations and acquaintances, they anticipate substantial amounts more will leave, in the coming months, as a result of their experience.

They also plan to increase their campaign to warn prospective depositors not to be taken in by claims of ‘a well regulated jurisdiction’, ‘compensations schemes’ and ‘parental guarantees; and avoid the risk of putting their money in the IOM.

Can anyone blame them?