. Many regulated companies (including banks) provide administration, trustee, and custodial services to CIS. There are many thousands of trusts and companies serviced on the island. Banks support the other sectors with deposit and lending services and with letters of credit to captive insurance companies. However, most assets of the banks are claims on their parent group companies.
While the insurance and investment sectors were also affected, the financial crisis has had a particular impact on banks, because of stresses at their parents . Most notably, the Guernsey
originated in the parent country, particularly mortgages in the UK. Most assets, however, are claims on parent or group banks, representing some 70 percent of the total ( Table 3 ).
13. The global crisis has had an impact on certain banks in Guernsey, because of problems in the parent banks . The most significant stresses were as follows:
(i) In 2007, the intervention in Northern Rock, a U.K.-based bank with a Guernseysubsidiary, created uncertainty over the position of Guernsey depositors until a U.K. guarantee for the U.K. bank’s liabilities was extended to
Guernsey is a leading international insurance center in Europe. Its economy purely depends on the performance of the financial sector. As per the 2003 assessment under the Offshore Financial Center (OFC) program, it is found that the Guernsey Financial Services Commission (GFSC)’s powers have been strengthened in recent years and many recommendations of the 2003 Financial Sector Assessment Program (FSAP) have been implemented. The GFSC has developed a strategy for addressing banks' financial stability risks, but strong policy measures will be essential to deal with the potential vulnerabilities and challenges ahead.
that the aggregate capital to asset ratio (i.e. the inverse of the leverage ratio) has remained below 2 percent in recent years. Profitability has been comfortable, although this may in part reflect transfer pricing by parent institutions that prefer to book profits in a low-tax jurisdiction.
16. The global crisis has, however, had a major impact on certain banks in Guernsey . In 2007, the intervention in Northern Rock, a UK-based bank with a Guernseysubsidiary, created uncertainty over the position of Guernsey depositors until a U.K. blanket guarantee for
The Basel Core Principles for Effective Banking Supervision (BCP) assessment confirms the high standard of prudential regulation and supervision described in the 2003 assessment, and found that the issues identified have largely been addressed. The Guernsey Financial Services Commission (GFSC), being the integrated regulator, is responsible for the regulation and supervision of all financial institutions and services provided on the island, and as the banking supervisor, has disciplinary powers to address safety and soundness issues. The GFSC cooperates with the home supervisors of institutions active on the island. Several broad areas for further action have been identified.
13. The STs covered 19 subsidiaries of foreign banks (out of 21 on the island), 5 except in the case of liquidity tests, which included in addition 5 foreign branches (out of 21) . The 19 subsidiaries included in the tests account, in principle, for the total assets of the Guernseysubsidiaries (i.e., 36 percent of the total assets of the banking sector). Seven of the subsidiaries belonged to U.K. banking groups and accounted for 40 percent of the total assets of the subsidiaries included in the solvency test sample; three subsidiaries
Stress testing (ST) was undertaken as part of the Guernsey Financial sector assessment Program (FSAP) Update in order to assess the resilience of the Guernsey financial system to a variety of potential strains. The approach taken was a simulation of the effect of a potential double-dip recession on solvency of Guernsey banks and insurance companies. The STs assess the sensitivity of banks and insurance companies to single-factor shocks to risk types affecting solvency and liquidity position of institutions. The mission recommends that future STs should be risk-based and that macroprudential analysis should be run on a regular basis.
-operation with regulatory bodies. All Guernsey incorporated banks are required to keep a minimum risk asset ratio of at least 8 percent (most have higher minima) calculated in accordance with the Basel Capital Accord. The overall risk asset ratio for Guernseysubsidiary banks as at the end of 2001 was approximately 20 percent. This is subject to an absolute minimum capital policy requirement of £1million upon incorporation. All but two Guernsey banks have capital over £5m. The two, which have less capital, are inactive and have risk asset ratios of 18 percent and 122 percent
The completion of the detailed assessment serves several purposes. First, it benchmarks the current state of banking supervision, recognizing that there have been extensive changes in the last years. Second, it suggests a number of further improvements or changes. Thus, this report provides a key input for the development of an action plan to move toward full compliance with the Core Principles. The assessment of the effectiveness of banking supervision was based on a review of the legal framework.