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Bank failure and deposit protection in offshore Britain: the case of Guernsey

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  • P.E. Morris

Abstract

Purpose - The global financial turmoil of 2008 spilled over into the British Isles offshore jurisdictions of Guernsey and the Isle of Man resulting in the collapse of two local subsidiaries of major Icelandic banking groups and consequent depositors' losses. The purpose of this paper is to contrast the sharply differing reactions of the insular authorities and critically evaluate Guernsey's recently enacted deposit protection scheme. Design/methodology/approach - The paper outlines the nature of the Guernsey jurisdiction, its offshore development and policy issues in deposit protection. Legislation establishing Guernsey's deposit protection scheme is described and critically evaluated. Findings - Guernsey's scheme is a rushed legislative reaction dominated by finance centre reputational concerns. The legislation is clear and comprehensive but the long-term robustness of its funding model is unclear. Originality/value - The analysis contained in this paper highlights the ramifications of international bank instability in small offshore jurisdictions and the regulatory problems this poses. Discussion of the legislative basis of the deposit protection scheme clarifies its nature and limitations as an investor protection technique, which is timely given the status of deposit protection as a key theme in the UK Government's initiated Foot Review of nine offshore jurisdictions.

Suggested Citation

  • P.E. Morris, 2010. "Bank failure and deposit protection in offshore Britain: the case of Guernsey," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 18(3), pages 272-292, July.
  • Handle: RePEc:eme:jfrcpp:v:18:y:2010:i:3:p:272-292
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    References listed on IDEAS

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    1. Richard Dale, 2000. "Deposit Insurance in Theory and Practice," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    2. David S. Hoelscher & Michael W Taylor & Ulrich H Klueh, 2006. "The Design and Implementation of Deposit Insurance Systems," IMF Occasional Papers 251, International Monetary Fund.
    3. Laeven, Luc, 2002. "International evidence on the value of deposit insurance," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(4), pages 721-732.
    4. Cranston, Ross, 2002. "Principles of Banking Law," OUP Catalogue, Oxford University Press, edition 2, number 9780199253319.
    5. Ramin Cooper Maysami & Chris Sakellariou, 2008. "Financial liberalization, deposit insurance and bank stability," Applied Economics Letters, Taylor & Francis Journals, vol. 15(10), pages 743-747.
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