Guernsey banks do not have trading books, they are not subject to noteworthy vulnerabilities to market risk. 26. As part of the BU test, banks were asked to calculate the impact of a variety of market risk shocks on their portfolios, consisting of both the trading and banking books ( Box 1 ) . The tests aimed at an assessment of three key market risk types, namely interest rate risk, foreign exchange rate risk and asset price risk. To that end, the tests covered (i) shocks to the sterling pound, US dollar, and Euro yield curve (I1-I12); (ii) changes of the sterling
double dip recession on the solvency of Guernsey banks and insurance companies . The stress tests (ST) were carried out in a manner consistent with those applied in Financial Sector Assessment Program (FSAP) Updates undertaken for the other two Crown Dependencies in 2008, but they also reflected actual experience of institutions and markets in the financial crisis. Hence, in practice, the Guernsey tests were slightly more conservative than in the other Crown Dependencies. As a result of the recovery in capital adequacy since the peak of the crisis (by end 2008), the
most affected by the crisis (structured credit), and the deposit-based nature of the banks’ business model has supported stability and prevented shocks channeled through the interbank and securities markets. As described above, two Guernsey banks were subject to particularly severe stress and one had to be put in administration during 2008. In both cases, the difficulties resulted from the financial stress of their parent. The experience underlines the key risk faced by many institutions on the island—exposure to the weaknesses of their parent institutions. In large
1996/1: Flows of Information To Parent Banks; Guidance Note 1997/1 on Bank Auditor’s Reports on GFSC returns used for prudential purposes; Guidance Notes on the Prevention of Money Laundering and Countering the Financing of Terrorism; guidance to prudential and statistical returns; Code of Conduct on deposit advertisements; principles of conduct of finance business; principles of conduct of derivatives business; Code of Practice for banks; and Guidance Note 2002/1 on Procedures for On-Site Visits to Overseas Operations of Guernsey Banks. Principles for the Management
(BaFin) and Keith Bell (banking supervision consultant). B. Information and Methodology Used for Assessment 2. The assessment of compliance with the BCPs was made on the basis of a study of the legal and regulatory framework, a self-assessment prepared by the Guernsey Financial Services Commission (GFSC), and detailed discussions with relevant authorities and stakeholders . Discussions were held with government representatives, the GFSC, the Association of Guernsey Banks (AGB), senior management of banks, and auditing firms. 3. The assessment team enjoyed
systematic program of corporate governance and full scope safety and soundness on-site visits to banks. Regulatory arrangements in banking and securities Banking 42. Following the introduction of the Banking Supervision (Bailiwick of Guernsey) (Amendment) Law, 2003, it is a legal requirement for each Guernsey bank to review, at least annually the responsibilities and conduct of the bank’s board of directors with respect to corporate governance principles. Should the review identify any shortcomings, the bank is required to report any findings to the GFSC