The news that the US Congress rejected the $700 billion bail-out plan devised by US Treasury Secretary Henry Paulson to prevent the financial crisis turning into an economic bogeyman has sent shockwaves into the financial sectors the world all-over.
The risk of having the bail-out package rejected is that the crisis, which is until now confined to the financial sector, will gradually coincide with the economic slowdown creating not just a financial crash but also an economic crash that will have wider and deeper consequences.
Europe is not immune to the financial crisis.
Already on Monday, the Benelux countries and France were required to shore up banking giant Fortis that was facing a run on deposits after severe losses eroded customer confidence. Fortis was partially nationalised.
The shockwaves continued yesterday with the Belgian government announcing a €6.4 billion rescue package to help ailing bank Dexia.
In Iceland the third largest bank, Glitnir was also partially nationalised with government buying a 75 per cent stake for €600 million, to prevent the bank from going under.
Furthermore, the Irish government yesterday announced it would safeguard all deposits, bonds and debts in six major banks and building societies for two years. The decision came after Irish banks experienced an enormous drop in the value of their shares on Monday. The guarantee by the Irish taxpayer will cover €400 billion of liabilities.
The facts speak for themselves. The storm warning for Europe has been lit and Monday’s failure by the US Congress to pass the bail-out package can only hasten the speed at which the storm will hit the continent.
This leader does not believe Malta is immune to all this turmoil, whether directly or indirectly.
Unfortunately, Malta’s banks have remained silent. They have failed to put customers’ and shareholders’ minds at rest. Even if the banks have enough liquidity to act as a comfortable cushion they should speak publicly about the impact of the international crisis on the domestic front.
But if the banks have failed to communicate clearly and effectively a bigger failure rests with the regulatory authorities. Neither the Central Bank of Malta nor the Malta Financial Services Authority stepped in to allay fears.
Should shareholders worry about the behaviour of the banks they have invested in?
Can people who have invested in pension funds, bonds and other investment instruments rest assured that diligence and prudence characterise the behaviour of the banks?
Are depositors’ funds safe?
Lest we are accused of alarmist talk, these questions are those investors and customers are asking. They are the same questions people in the US and Europe are asking.
We believe that the regulators have an important role to play and they must communicate with the general public in clear terms.
Silence cannot be an option at a time when the storm warning has been lit for Europe.
It is not enough for the CBM and the MFSA to give government a breakdown of the situation. They are independent regulators and we expect them to act as the custodians of the public good.
They have a duty to go public with a thorough analysis of the domestic scenario and whether any contingency plans have been put in place.
On a more positive note, it was quite refreshing to see that in parliament, Tonio Fenech yesterday reported that an analysis by MFSA and CBM has been carried out to find that no bank in Malta will be directly impacted by the fall out of sub-prime loans. But once we have been informed about the existence of such reports, we expect to see them duly reported in the media.
