Bank: “An organisation offering financial services, especially the safe keeping of customers’ money until required…” Oxford English Dictionary
…banks, although not “core banks”, should be allowed to fail… John Aspden, Chief Executive Officer, FSC, Compliance Institute Conference, January 2009. (1) *
“We are not favouring 100 per cent cover. There is a view on the island that there is a responsibility on depositors. There is a bit of risk for everybody in life and they are no different.” Tony Brown, Chief Minister, Isle of Man. Financial Times, 16 November 2009 (2)
“There is only a small pool of people on the island on whom we can call, with the right professional background and professional experience. So the issue of conflicts of interest has been a issue going back several years”. John Cashen, Deputy Chairman of the Financial Supervision Commission and Non Executive Director of KSFIOM. Tynwald Enquiry into the Collapse of KSFIOM, 13th November 2009 (3)
“It is apparent that our views are diametrically opposed with regard to the relative merits of your proposal for a Loan Trust. As previously advised The Isle of Man Treasury reached its decision after detailed and careful consideration and will not be progressing your proposal.” Anne Craine, Minister for the Treasury, August 2011, in a letter to the KSFIOM Depositors Action Group in a response to a low-cost proposal to rectify the situation depositors have found themselves in.
“As far as the situation for the Isle of Man is concerned, we are accepting our responsibilities and endeavouring to rectify the situation.” Tony Brown, Chief Minister, Isle of Man, United Kingdom Treasury Select Committee on the Banking Crisis, 3rd February 2009. (4)
There is no “a bit of” risk when it comes to bank failures, your entire deposit disappears overnight. When a bank fails on the IOM your deposit is not returned until the liquidation process starts, even then it is returned in dribs and drabs. See also Depositors Compensation Scheme and Time Line.
The aim of this website is to warn people who have a bank account on the Isle of Man (or who are contemplating opening one) about the dangers of banking there. The reasons are given in the words of the officials of the financial regulator (FSC), Government Ministers and other official sources.
On October the 9th 2008 the Isle of Man branch of Kaupthing Singer and Friedlander collapsed when hundreds of million pounds it had loaned to the UK branch was lost when KSF UK collapsed. This caused the Isle of Man branch to collapse as well, taking the savings of approximately 11,000 depositors with it.
|% of Deposit Returned||Time Taken
|10.1||2 years 2 months|
|12.5||2 years 6 months|
|9.6||3 years 1 month|
|7.8||3 years 8 months|
|4.8||4 years 9 months|
|2.2||5 years 11 months|
|2.0||6 years 2 months|
|Final payment of outstanding interest||11 years 5 months|
“Given the higher speed of return, the expectation of about 97% rate of recovery and the comparatively low number of people who remain to be paid out in full, we have come to the conclusion that paying out a portion of the remaining amount outstanding would now achieve little.” Tynwald Select Committee on KSFIOM Final Report July 2011(Conclusion 72) (4)
The “comparatively low” number of people owned 75% of the amount deposited and the final payout was expected to be made in 2017 but was actually paid in 2020.
Many FSC commissioners have quite a few directorships as well, in fact of the 8 commissioners listed 7 of them have over 60 directorships between them! You can see them all here: http://www.gov.im/fsc/about/conflicts/current_directorships.xml You have to wonder how much time they can devote to their regulatory duties.
You might want to ask yourself.
- Which banks are non-core? Is yours one of them?
- Do you want to bank in a jurisdiction where the director of a bank can also serve as a banking regulator and a regulator of their employer’s competition?
- Do you want to bank in a jurisdiction that claims to be a major financial centre but cannot staff its regulator adequately?
- Can you reconcile the apparent unwillingness or inability to recruit from outside with the IOM claim to be global finance centre?
- Can you reconcile “endeavouring to rectify the situation” with “paying out a portion of the remaining amount outstanding would now achieve little” or “will not be progressing your proposal”?
- Do you think waiting years for the return of less than 100% of your money from a failed bank could be described as a “higher speed return”?
1) Manx Herald http://www.manxherald.com/index.php/finance/item/396-fsc-%E2%80%98chief%E2%80%99-tells-c-i-conference-%E2%80%98regulation%E2%80%99-not-coped-well-with-banking-crisis
2) Financial Times http://www.ft.com/cms/s/0/8f5e8b10-d241-11de-a0f0-00144feabdc0.html?nclick_check=1
3) Tynwald Committee Hansards http://www.tynwald.org.im/papers/committee/hansard/oe13112009.pdf
4) UK Treasury Select Committee: Banking Crisis http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/144i.pdf
* This quote is taken from an article in the Manx Herald where Mr Aspden reportedly linked ‘chasing interest rates’ with risk. The author of this website is of the opinion that this link is disingenuous for the following reasons. Firstly, there is a myth on the Isle of Man that KSFIOM was paying exceptionally high-interest rates. It was not. At the time of the collapse, it was approximately 6.8%, the same as many other institutions on the Isle of Man some of which were presumably ‘core banks’. When competing banks are paying interest rates that may vary only by 0.1% or 0.2% between them how is one supposed to assess the risk?
A single banking institution often provides a range of accounts some of which pay no interest at all. Under these circumstances, the author contends that there is very little connection between interest rates paid on deposit accounts in banks and risk. For instance, a current account usually pays very little, if any interest. By Mr Aspden’s reasoning that should be a lot less risky than a savings account paying a decent interest rate. But, the contents of both accounts would disappear, regardless of the interest rate paid on them, if the bank failed.
Banks in the UK are currently paying virtually no interest on savings accounts but they are the same banks that needed enormous bailouts by the UK taxpayer. Today, presumably, they have more non-performing loans and reduced asset values. The risk is with the institution, not the interest rates paid. Are UK banks less risky than they were in 2008 because they are now paying derisory interest rates?