Specific Reference to the Caribbean Region

Specific Reference to the Caribbean Region
13th IADI Annual Conference
“Updated Core Principles to Strengthen the Financial Stability Architecture”
October 22-23, 2014
Antoinette McKain, CEO
Jamaica Deposit Insurance Corporation
Updated November 2014
Outline
Key elements for an effective resolution regime for
banks
Overview of the financial/ banking system in the
Caribbean
Bank resolution/failures - last 3 decades in
selected Caribbean countries
Resolution and insolvency frameworks for Banks
in the Caribbean:
Overview
Challenges/
Gaps
Recommendations to enhance the framework
International Standards: Key Elements for an
Effective Resolution Regime
IADI/BCBS
Financial Stability Board
Key Attributes of Effective
Resolution Regimes for Financial
Institutions (2011)
Basel Core
Principles of
Banking
Supervision
(2012)
Core Principles for
Effective Deposit
Insurance Systems
(2014)
1. Mechanisms for early detection and
timely
intervention/prompt corrective actions
2. Broad range of resolution options
3. Special resolution regime
4. Designated authority(ies) for resolution
5. Cooperation among relevant authorities domestic & cross border
6. Explicit depositor protection
7. Crisis management plans
Overview of the Financial System- Caribbean
The financial system in the Caribbean is largely bank-
based (onshore and offshore banking)
Offshore banking is the largest subsector in the
financial system (Barbados, Bahamas, British Virgin
Islands -BVI, Eastern Caribbean Currency UnionECCU & Belize)
Non-bank financial institutions include credit unions;
insurance companies; and securities firms
Table 1: Structure of Financial System in Selected Caribbean Countries
Total Assets (US$ millions)
ECCU
Barbados
Bahamas
BVI
Jamaica
Trinidad
&
Tobago
Belize
Guyana
9,509
6, 240
12,100
2,500
8,724
17,891
1,319
1,590
Local
4,232
5,670
2,800
D.N.A.
5,226
D.N.A.
449
D.N.A
Foreign
5,277
570
9,300
D.N.A.
3,498
D.N.A.
870
D.N.A
Offshore
Banks
2,402
42,638
582,900
D.N.A
n/a
n/a
301
n/a
Credit
Unions
682
842
300
D.N.A
526
1,524
306
21
Insurance
Companies
637
1,521
2,500
D.N.A
2,511
4,768
97
157
Securities
Firms
D.N.A
D.N.A.
D.N.A
D.N.A
8,328
D.N.A
D.N.A
D.N.A
Total
13,230
51,241
597,800
2,500
20,089
24,183
2,023
1,768
Banks
Key: D.N.A. – Data not available, n/a. – Not applicable
Source: IMF WP/13/175 and country authorities
Overview of the Banking Structure- Caribbean
Total assets in the banking system as a percentage of gross
domestic product is a measure of financial depth of an
economy
Total assets of the banking system (excluding off-shore)
represents approximately 91 percent of regional GDP
Total assets of the financial sector (excluding offshore
banks) amounts to 124 percent of the regional GDP
(IMF Working paper 13/175 - Financial Interconnectedness and Financial
Sector Reforms in the Caribbean)
Table 2: Structure of Banking System in Selected Caribbean
Countries- Total Assets to GDP (%)
ECCU
Barbados
Bahamas
BVI
Jamaica
T&T
Belize
Guyana
176
135
150
268
68
77
89
64
Local
78
123
35
D.N.A.
41
D.N.A.
30
D.N.A
Foreign
98
12
115
D.N.A.
27
D.N.A.
59
D.N.A
Offshore
Banks
45
928
7220
D.N.A
n/a
n/a
20
n/a
Total
221
1063
7370
268
68
77
109
64
Banks
D.N.A. – Data not available, n/a. – Not applicable
Source: IMF WP/13/175 and calculations from country authorities
Overview of the Banking System- Selected
Caribbean Countries
Table 3: Total Bank Assets to GDP– Global
Comparison
Country
Banking Assets as a Percentage
of GDP
Barbados
135%
Bahamas
150%
Canada
212 %
Jamaica
68 %
Trinidad & Tobago
77%
United Kingdom
463%
United States
102%
Source: IMF WP/13/175 and country calculations 2012 and 2013
Overview of the Banking System
Interconnectivity and Dominance of Regional Banks
Most banks are connected to non-bank financial
institutions in the investments/securities
insurance sectors through common ownership
and
Foreign banks account for approximately 60% of
banking assets in the region. Primarily Canadian
banks e.g. Royal Bank of Canada (RBC), Canadian
Imperial Bank of Commerce (CIBC), Republic Bank
and Bank of Nova Scotia (BNS)
Table 4: Financial Sector Connectivity in the Caribbean
Deposit
Taking
Institutions
Related NonBanking Operations
Bank of Nova
Scotia Ltd
Insurance &
Investments
RBC Royal
Bank Ltd
CIBC
FirstCaribbean
Bank Ltd
Investments &
Insurance
Insurance,
Investments & Real
Estate
Countries
Anguilla, Antigua and Barbuda, Aruba, Bahamas,
Barbados, Belize, British Virgin Islands, Cayman,
Dominica, Dominican Republic, Grenada, Guyana,
Haiti, Jamaica, St Lucia, St Kitts, St Vincent and the
Grenadines, Trinidad & Tobago, Turks and Caicos, St
Maarten
Antigua, Aruba, Bahamas , Barbados, Bonaire, Cayman
Islands, Curacao, Dominica, Grenada, Montserrat,
Saba, St Kitts, St Lucia, St Maarten, St. Vincent and the
Grenadines, Suriname, Trinidad & Tobago and Turks &
Caicos.
Anguilla, Antigua, Bahamas, Belize, Barbados, British
Virgin Islands, Cayman, Curacao, Dominica, Grenada,
Jamaica, St Lucia, St. Kitts, St. Vincent and the
Grenadines, Trinidad & Tobago, Netherland Antilles
and Turks and Caicos
Source: Respective Banks’ Websites
Number
of
Countries
20
18
17
Table 3 : Financial Sector Connectivity in the Caribbean (continued)
Deposit
Taking
Institutions
Related NonBanking
Operations
Republic
Bank Limited
Securities
Countries
Number
of
Countries
Barbados, Cayman, Grenada, Guyana and
Trinidad & Tobago
5
Sagicor Bank
Jamaica
Insurance,
Investments,
Property Services &
Employee Benefits
Administration
Jamaica, St Lucia and Cayman
3
Citibank N.A.
Securities
Bahamas, Barbados, Cayman, Dominican
Republic ,Haiti, Jamaica, Puerto Rico and
Trinidad & Tobago
8
Source: Respective Banks’ Websites
Table 4: Bank Resolution over the last 30 years in
Selected Caribbean Countries
Country
Bank
Approximate
Cost to the
System
Financial Sector
Crisis, 1990’s –
several
banks
and non-banks
The Financial Sector Adjustment Company
Limited (FINSAC) was created on January 29, 42% of GDP/
1997 to treat with financial sector problems. US$3.1 billion
Resolution strategies for banks included (2001)
temporary management, capital injection
in exchange for equity/assets; purchase and
assumption; divestment; mergers and
acquisitions.
Bank of Credit &
Commerce
International
1991
Operations of Jamaican branch suspended Not available
by the Ministry of Finance, following the
Bank of England's directive. Deposits were
fully repaid and operations closed.
Bank of Credit &
Commerce
International
(BCCI) 1991
Central Bank of Barbados intervened and Not available
seized BCCI. In 1993, Mutual Bank of the
Caribbean Inc. was set up by the Central
Bank to manage the sale of BCCI. (In 1991
Bank of England ordered the bank to close
its global operations)
Jamaica
Barbados
Resolution Mechanism
Table 4: Bank Resolution over the last 30 years in
Selected Caribbean Countries
Country
Bank
Resolution Mechanism
Approximate
Cost to the
System
Several
banks A combination of resolution strategies were Not available
during the period employed, including liquidation.
1986 -1993
Trinidad
and
Tobago
Antigua
CLICO
Central Bank intervention and liquidation. Over
US$3
Investment Bank Depositor reimbursement by DICTT & billion to date 2009
government guaranteed payments
CLICO Group
Bank of Antigua BOA (owned by
Stanford
Financial Group)
2009
Eastern Caribbean Central Bank (ECCB)
intervened through recapitalization and
liquidity support.
ECCB’s intervention
facilitated the acquisition of certain assets
and liabilities of BOA by Eastern Caribbean
Amalgamated Bank in 2010 which is
currently in operation.
Not available.
ECCB loan to
Government of
Antigua
and
Barbuda
–
approx. US$33
million
Bank Resolution over the last 30 years in Selected
Caribbean Countries - Causes
Inadequate regulation and enforcement/ supervision on the part of
bank regulators and supervisors
Unsound banking practices, for example, poor liquidity; inadequate
capital
Poor corporate governance
Absence of special insolvency laws for banks
Rapid expansion of companies within conglomerates and complex
group structures resulting in fraud, concealment and parent/group
contagion
Overview of the Current Legal and
Supervisory Framework for Banks
Some common features of the current legal and supervisory
framework for banks in Bahamas, Barbados, Bermuda; British
Virgin Islands, Jamaica, Trinidad and Tobago and OECS:
The legal framework is generally clear on responsibilities and
objectives for each authority involved in the supervision of
banks (Supervision devolved - Central Bank; Monetary
Authority; The Financial Services Commission)
Banking laws confer powers on bank supervisors to prescribe
prudential and other requirements; take corrective and
sanctioning actions
Overview of the Current Legal and
Supervisory Framework for Banks
Some common features of the current legal and supervisory
framework for banks in Bahamas, Barbados, Bermuda; British
Virgin Islands, Jamaica, Trinidad and Tobago and OECS:
Range of intervention and
resolution powers between the
Supervisors and the Deposit Insurers and at times resolution
powers are also vested in the Minister responsible for the
financial affairs of the country
Legal framework is generally clear on the responsibilities of the
Deposit Insurer
Overview of the Current Legal and
Supervisory Framework for Banks
Bermuda Monetary Authority has proposed a framework for a
special resolution regime for banks licensed in Bermuda
The Bill seeks to provide the authorities with the necessary
stabilisation powers to transfer part or all of a failing bank’s
business to a private sector purchaser, assume control of part or
all of a failing bank’s business through a bridge bank and acquire
temporary public ownership of a bank where required.
Deposit Insurers (in T&T, Jamaica, Barbados and Bahamas) may
act as liquidator or receiver for the winding-up of banks however
only when advised or guided by the Central Bank and /or the
Minister of Finance; or the courts as is the case for the respective
country
Overview of the Current Legal and Supervisory
Framework for BanksInsolvency Laws
The
general insolvency framework for companies and
administered by the court is applicable for winding-up insolvent
banks in most countries i.e. there are no special insolvency laws
for banks in these countries.
Barbados has a framework which implements some of the more
modern best practice recommendations worked into their
Financial Institutions Act, Cap324A, 2006.
The Barbados Financial Institutions Act instructs that in the case
of deposit taking institutions the Deposit Insurance Corporation
shall be the liquidator and shall be responsible to the Court for
the winding-up of that institution (Section 69 (b))
Table 5: Overview of the Legal and Supervisory
Framework for Banks in Selected Caribbean
Countries
Country
Lead Authority Responsible for
Supervision of DTIs
Authority to Wind Up Bank
Bahamas
Central Bank of the Bahamas- Office The Governor after advising the
of Inspector of Banks (Inspector)
Minister applies to the Supreme
Court
Barbados
The Central Bank of Barbados The Central Bank after notifying
through its Supervision Department
the Minister, applies to the High
Court
Bermuda
Bermuda Monetary Authority (BMA)
BMA
through
a
Special
Resolution Regime (SRR) in
conjunction with the Minister.
Where public funds are involved,
then the Government will take
control.
Table 5: Overview of the Legal and Supervisory
Framework for Banks in Selected Caribbean Countries
Country
Lead Authority Responsible for
Supervision of DTIs
British Virgin Islands
The Financial Services Commission
Jamaica
The
Central
Bank
through
its
Governor. The Central Bank through a
Supervisory Committee determines
whether a member institution is
insolvent
Organization
of Eastern Caribbean Central Bank
Eastern Caribbean (ECCB). The ECCB is the Monetary
States (OECS)
Authority for a group of eight
members/island economies
Trinidad and Tobago The Central Bank of Trinidad and
Tobago – Inspector of Financial
Institutions
Authority to Wind Up Bank
The
Financial
Services
Commission by Court Order.
The Central Bank through the
Supervisor of Banks and after
consultation with the Minister of
Finance.
The
Minister,
acting
on
recommendation of the Central
Bank.
The Central Bank of Trinidad and
Tobago on the recommendation
of the Inspector of Financial
Institutions.
Challenges -Regulatory/Insolvency
Regimes to Address Bank Resolution
1.
Structure of the Banking System
Small number of banks account for the majority of market share
Interconnectedness and concentration of banking system
Impact of a bank resolution may be exacerbated by these features
given the relatively small size of respective Caribbean countries
2.
Intervention and Resolution Framework
Further work needed in the reform of resolution regimes and
resolution planning
Legal, operational and financial barriers to the feasibility of an
effective resolution regime
Costs associated to complying with regulations
Challenges -Regulatory/Insolvency
Regimes to Address Bank Resolution
3. Legal and Judicial Framework
Court proceedings not handled quickly to restore confidence in
the banking sector and maximize/preserve the value of bank
assets
Insolvency laws and laws governing the winding up of banks not
harmonized throughout the region
Current insolvency frameworks in the region are not well suited
to deal with serious cross-border problems
4. Cross-border Information Sharing
The framework for cross border sharing of information among
regulators still a work in progress
5. Financial literacy
Low levels likely to impact financial system confidence in a crisis
Challenges -Regulatory/Insolvency
Regimes to Address Bank Resolution
6. Political implications of a bank resolution
Potential political implications may delay/ influence timely
decision making/prompt corrective action by authorities
7. Available resources for bank supervision/ resolution:
Attraction/retention of key technical expertise/human resources
Small pool of skilled professionals in the region - may give rise to
conflict of interest in the resolution of a bank e.g. auditors;
liquidator.
8. Explicit Deposit Insurance Schemes
Only four countries in the Region have a Deposit Insurance
Scheme (DIS) and are also members of IADI (Bahamas,
Barbados, Jamaica and Trinidad and Tobago. BVI is in the process
of establishing a DIS.)
Recommendations to Enhance the
Regulatory/Insolvency Framework
1. Establish Special Resolution Regime (SRR) for
banks
Clearly
defined rules based or statutory trigger
mechanisms for intervention and resolution of banks
Adequate resolution powers and options that are clearly
outlined in legislation
Assignment of designated/lead resolution authority and/
or resolution agent to execute selected resolution options
with adequate powers
Recommendations to Enhance the
Regulatory/Insolvency Framework
1. Establish Special Resolution Regime (SRR) for
banks
Law should allow and/or establish appropriate framework for
designated resolution authority/agent to have powers to
collaborate and share information with foreign resolution
authorities/agents wherever possible
Regulatory intervention and resolution actions should be
largely administrative and expressly have primacy over court
process. Laws should clearly allow for Set-off, netting, the
finality of payment and settlement and the prohibition on
acceleration of termination rights
Recommendations to Enhance the
Regulatory/Insolvency Framework
1. Establish Special Resolution Regime (SRR) for
banks- Separate Insolvency Framework
Assess adequacy of general insolvency laws/ framework
for the timely and orderly resolution of banks
Bank insolvency laws should be designed to operate
independently from general insolvency laws
National laws and regulations should not discriminate
against creditors on the basis of their nationality, the
location of their claim or the jurisdiction where it is
payable
Recommendations to Enhance the
Regulatory/Insolvency Framework
1. Establish Special Resolution Regime (SRR) for
banks- Separate Insolvency Framework
The statutory mandate of a resolution authority/agent
should allow for cooperation with foreign resolution
authorities/agents and the treatment of assets in cross
border insolvency should be understood in advance
The treatment of creditors and ranking in insolvency
should be harmonized across borders and adequately
disclosed to depositors, insurance policy holders and other
creditors. Equity holders should bear first losses
Recommendations to Enhance the
Regulatory/Insolvency Framework
2. Establishment of crisis management plans at various
levels:
Institutional level – develop plans
for the recovery and
resolutions of firms that could be systematically significant
Relevant authorities/FSSN Partners (Supervisor, Ministry of
Finance, Deposit Insurer etc) - Develop individual Crisis
Management Plan
National level – FSSN Partners - develop National Crisis
Management Plan
Regional level – authorities should have the power in
governing legislation to share information where possible.
Establish MOU with regional authorities including
collaboration on crisis management issues
Recommendations to Enhance the
Regulatory/Insolvency Framework
3. Enhance collaboration among financial system safety
net partners (FSSN) – domestic and regional
Roles and responsibilities of FSSN within each country should be
clearly defined
Collaboration should be enhanced among the FSSN specifically for
cross border banking groups/regional financial conglomerates
Where a bank has branches in other Caribbean regions, the relevant
authorities should clearly and in advance establish (i) which
jurisdiction is responsible for providing deposit insurance coverage to
the depositors of each branch, and (ii) the rules governing insolvency.
Collaboration to increase the levels of financial literacy in the region
should be strengthened in compliance with the IADI Core PrinciplesPrinciple 10- Public Awareness.
Recommendations to Enhance the
Regulatory/Insolvency Framework
4. Establishment of Deposit Insurance Schemes
Establishment of DIs within other Caribbean countries will
strengthen the regional financial sector; better harmonize the
protection of depositors and lessen the propensity for runs on
banks
The deposit insurer should be operationally independent
Establish regional DIS resource pool (funding & technical
expertise to enhance prompt bank resolution)
Deposit insurance agencies should have statutory powers to act
as liquidator or receiver or judicial manager for winding up
banks
THANK YOU