After months of international financial turmoil and the ensuing widespread panic, Finance Minister Tonio Fenech has finally come out to reassure everyone that there is no crisis for Maltese banks. By KARL SCHEMBRI

Flanked by the otherwise perpetually silent (not that they said much during the event anyway) Central Bank governor Michael Bonello and MFSA Chairman Joe Bannister, Fenech decided to break the silence last Wednesday, a day after European finance ministers decided to intervene.
The thinking by the government and the Central Bank so far has been that the less said, the better, as any word about the international crisis could be easily misinterpreted, with massive repercussions, even though people have been naturally asking how safe is their money deposited in Maltese banks.
Even once the press conference was over, the finance ministry has been reluctant to answer even the most basic of questions in its bid “not to panic” the people, amid fears that people will run to the banks at the slightest piece of information.
But Fenech’s message was clear and reassuring to all those who have their money deposited in banks: the crisis is far away from here and their accounts will remain intact.
The reason is quite simple: bank deposits in Malta total around €8.5 billion, which is more than what the banks have lent to their clients. On the other hand, they have little or none invested in the so-called “toxic assets” of US and UK markets. In contrast with banks like the British Northern Rock, which relied heavily on the markets to fund its mortgage lending, Maltese banks depend on savers’ deposits.
“That is why Maltese banks are effectively far from the reach of the credit crunch,” Fenech explained.
The toxic assets are mainly the result of loans dished out to customers who cannot repay, with banks amassing a whole package of loans that remain unlikely to be repaid.
As this was happening abroad, banks lost trust between themselves, leading to a total stoppage of inter-bank lending and the eventual collapse of the system.
This meant that when, for example, one went to bank A to cash a cheque issued by bank B, bank A was not sure that the other bank would honour the transaction during the daily clearing procedure.
The issue here is liquidity, that is how easy it is to convert something into cash. Although banks were amassing properties seized from defaulting debtors, their value was going down by the minute as the mortgage market was compromised – hence the low liquidity.
On the other hand, Maltese banks still have a high liquidity given the strong amounts of deposits. It is the investment funds that are affected, depending on the risk factor opted for by the individual investor.
Still, the Maltese government decided to guarantee up to €100,000 per account holder – an increase of €80,000 over the previous €20,000 guaranteed by Maltese banks.
The new guarantee means that if you have up to €100,000 deposited in one bank, you would get all the money back should a crisis hit Malta.
The guarantee is issued by the Central Bank on every bank, which means that if you have €200,000 deposited in BOV and HSBC, you will get the full amount should a crisis occur, but you would only get half the amount if it is all deposited in one bank.
“We won’t reach that stage of having to use the guarantee,” Tonio Fenech said repeatedly.
The idea is to give back the confidence to account holders in banks and avoid bringing a crisis based solely on fears and misconceptions.
Yet the whole story is also a cautionary tale to all those blinded by ideological privatisation, rather than pragmatic policies. Now even Fenech himself admits that the BOV privatisation plans will be “shelved” indefinitely.
“This is not the time to divest ourselves from BOV shares (25% state-owned). It’s definitely not something to do now. It’s on the shelf and will gain some dust for some time," he said.