Bermuda is going to feel the knock-on effects of the US and global economic crisis - but should also see the benefits of a recovery after time.

That is the reality check given by John Kephart, president and CEO of Capital G Bank Ltd., who spoke about the impact of the financial turmoil on the Island's economy, the causes and solutions to the world economy collapse and the result of the change, at the Hamilton Rotary Club's latest meeting held at the Royal Hamilton Amateur Dinghy Club yesterday.

Mr. Kephart also moved to reassure concerned listeners that his bank was in good shape, despite its parent company Edmund Gibbons Ltd. Group adding $20 million to bolster the bank's "capital buffer" earlier this month.

He said the problem of the economic crisis was caused by simple home loans being turned into complex financial instruments, resulting in the banks having to write down their investments and entering the market to raise capital.

Mr. Kephart said that Bermuda has been hit by the turmoil, firstly as a centre of re/insurance by factors such as issued credit default swaps, and secondly by other countries looking to raise revenue, including the US Government seeking to find tax dollars, with the Island as a potential target.

In other areas like jobs and the real estate market, the economic downturn had already taken effect, he argued.

"For us, we know for a fact that there is going to be a reduction in the number of expatriates working on the Island and that is a given - it is already happening," he said.

"As a result, rental revenues are starting to fall."

Mr. Kephart said the bank had taken its own precautions to weather the financial storm, building up additional reserves in the event of a worst case scenario happening.

"We have gone through the exercise of examining our portfolio and we have put a cushion in as a maybe or possible back-up, but it is not something that we think is probable in the near-term.

"We are extraordinarily well-capitalised and the safety that comes with us is enormous."

Looking to the future, he said it was a case of wait-and-see if and how tourism would recover and whether capital would flow into the Island to fuel the construction boom, but said the one positive to come out of this was Government's tireless work on tax issues with the US and treaties with other OECD (Organisation for Economic Co-operation and Development) jurisdictions.

"It is about making sure that the tax issues are not the issues that affect the Island," he said.

"The relationship with US Congress is a key relationship that needs to be maintained, but Government is doing a great job in these lines of communication."