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
1
Outline
 Key elements for an effective resolution regime for
Banks
 Overview of the banking system in the Caribbean
 Bank resolution/failures - last 3 decades in selected
Caribbean countries
 Resolution and insolvency frameworks in the
Caribbean:
 Overview
 Challenges/ Gaps
 Recommendations to enhance the frameworks
2
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
action
2. Special resolution regime
3. Designated authority (ies) for
exercising resolution powers
4. Broad range of resolution options &
powers
5. Cooperation among relevant
authorities - domestic & cross border
3
Overview of the Banking System
 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, BVI, ECCU &
Belize)
 Non-bank financial institutions consist of credit
unions; insurance companies ; and securities firms
4
Table 1: Structure of Financial System: Total Assets (US$ millions)
ECCU
Barbados
Bahamas
BVI*
Jamaica**
T&T
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
2511
4,768
97
157
Securities
firm
D.N.A
D.N.A.
D.N.A
D.N.A
4,674
D.N.A
D.N.A
D.N.A
Total
13,230
57,480
597,800
2,500
16,435
24,183
2,023
1,768
Banks
D.N.A. – Data not available, n/a. – Not applicable
Source: IMF WP/13/175 and country authorities
5
Overview of the Banking System
 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 Section reforms in
the Caribbean)
6
Table 2: Structure of Banking System: Total Assets to GDP (%)
ECCU
Barbados
Bahamas
BVI
Jamaica
T&T
Belize
Guyana
176
136
150
268
68
73
89
64
Local
79
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
1064
7370
268
68
73
109
64
Banks
D.N.A. – Data not available, n/a. – Not applicable
Source: IMF WP/13/175 and calculations from country authorities
7
Overview of the Banking System
GDP to Bank Assets – Global Comparison
Country
Banking Assets as a Percentage
of GDP
Barbados*
136%
Bahamas
150%
Canada
214 %
Jamaica
68 %
Trinidad & Tobago*
73%
United Kingdom
463%
United States
88 %
*IMF WP/13/175, country calculations 2013
8
Overview of the Banking System
 Interconnectivity and dominance of regional banks:
Royal Bank of Canada, Canadian Imperial Bank of
Commerce, Republic Bank and Scotia Bank
 Foreign banks account for approximately 60% of
banking assets in the region (primarily Canadian
banks)
 Most banks are connected to non-bank financial
institutions in the investments/securities, insurance
and real estate sectors through common ownership.
9
Table 3: Financial Sector Connectivity in the Caribbean
Related NonBanking Operations
Countries
Number of
Countries
Insurance,
Investments
Anguilla, Antigua and Barbuda, Aruba, Bahamas,
Barbados, Belize, British VI, Cayman, Dominica,
Dominican Republic, Grenada, Guyana, Haiti,
Jamaica, St Lucia, St Kitts, St Vincent and the
Grenadines, Trinidad & Tobago, Turks and Caicos, St
Maarten
20
RBC Royal Bank Ltd
Investments &
Insurance
Antigua, Aruba, Bahamas, Turks & Caicos, Barbados,
Bonaire, Cayman Islands, Curacao, Dominica,
Montserrat, St Kitts, St Lucia, St Maarten, Suriname
and Trinidad & Tobago.
14
CIBC FirstCaribbean Bank Ltd
Insurance,
Investments, Real
Estate
Barbados, Cayman, St Lucia, Jamaica, Trinidad &
Tobago, Netherland Antillies, Bahamas, and Turks
and Caicos
8
Republic Bank Limited
Securities
Barbados, Cayman, Grenada, Guyana and Trinidad &
Tobago
5
Sagicor Bank Jamaica
Insurance,
Investments, Property
Services & Employee
Benefits
Administration
Jamaica, St Lucia, Cayman and Costa Rica
4
Bahamas, Barbados, Cayman, Dominican Republic
Haiti, Jamaica and Trinidad & Tobago
10
Deposit Taking Institutions
Bank of Nova Scotia Ltd
CitiBank N.A.
7
Bank Resolution over the last 30 years in Selected
Caribbean Countries
Country
Jamaica
Barbados
Bank
Resolution Mechanism
Approximate
Cost to the
System
Financial Sector
Crisis, 1990’s –
included several
banks and nonbanks
The Financial Sector Adjustment Company
Limited (FINSAC) was created on January 29, 40% of GDP/
1997 to treat with financial sector problems. US$9.7 billion
Resolution strategies for Banks included (1998)
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 by the Not available
MOF, 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
11
its global operations)
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 ECCB intervened through recapitalization
(owned
by and liquidity support. ECCB’s intervention
Stanford
facilitated the acquisition of certain assets
Financial Group) and liabilities of BOA by Eastern Caribbean
2009
Amalgamated Bank in 2010 which is
currently in operation.
Not available.
ECCB loan to
Govt.
of
Antigua
and
Barbuda
–
approx US$33
million
12
Bank Resolution over the last 30 years in Selected
Caribbean Countries - Causes
 Inadequate regulation and enforcement/ supervision on the part
of bank supervisors and regulators
 Unsound banking practices
 Poor corporate governance
 Weak legal framework, judicial and criminal investigation
system
 Rapid expansion of companies within conglomerates and
complex group structures
13
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
 As between the Supervisors and the DI there are a range of respective intervention and
resolution powers and at times resolution powers are also vested in the Cabinet Minister
responsible for the financial affairs of the country.
 Where it exists the legal framework is generally clear on the responsibilities of deposit
insurers
14
Insolvency Laws Governing Banks in the
Caribbean
 There are no special insolvency regime for banks in the
countries examined.
 The general insolvency framework for companies and
administered by the court is applicable for winding-up
insolvent banks.
 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.
15
Insolvency Laws Governing Banks in the
Caribbean
 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.
16
Overview of the Legal and Supervisory Framework for DTIs in
Selected Caribbean Countries
Country
Lead Authority Responsible for
Supervision of DTIs
Authority to Wind Up Bank
Bahamas
Central Bank of the Bahamas- Office of The Governor
after advising the
Inspector of Banks (Inspector)
Minister
applies to the Supreme
Court
Barbados
The Central Bank of Barbados through its The Central Bank after notifying the
Supervision Department
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 Govt will take
control.
17
Overview of the Legal and Supervisory Framework for DTIs in
Selected Caribbean Countries
Country
Lead Authority Responsible for
Supervision of DTIs
Authority to Wind Up Bank
British Virgin Islands
The Financial Services Commission
The Financial Services Commission
by Court Order
Jamaica
The Central Bank through its Governor.
OECS
Eastern Caribbean Central Bank (ECCB) - The
Minister,
Monetary Authority for a group of eight recommendation
members/island economies
Bank
Trinidad and Tobago
The Central Bank of Trinidad and Tobago The Central Bank of Trinidad and
– Inspector of Financial Institutions
Tobago on the recommendation of
the Inspector of Financial Institutions.
The Central Bank through Supervisor
of banks and after consultation with
The Central Bank through a Supervisory
the Minister of Finance
Committee
determines
whether
a
member institution is insolvent.
acting
on
of the Central
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Challenges
Structure of Banking System

Small number of banks account for the majority of market
share

Interconnectedness and concentration of banking system
I. Framework for cross border sharing of information among
regulators still a work in progress
II. Impact of a bank resolution may be exacerbated by the relatively
small size of the financial system
IV. Legal and Judicial Framework
I.

Court proceedings are not handled quickly enough 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 through out the region
The current insolvency frameworks in the region are not well
suited to deal with serious cross-border problems

19
Challenges
Only 4 countries in the Region have a Deposit Insurance Scheme
(Bahamas, Barbados, Jamaica and Trinidad and Tobago. BVI is in the
process of establishing a DIS.)
VI. Inadequate regional collaboration among authorities
VII. Financial literacy - low levels may impact financial system
confidence in a crisis
VIII. Political implications of a bank resolution may delay timely decision
making
IX. Available resources for bank supervision/ resolution:
V.


Retention of key technical expertise/human resources by authorities;
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.
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Recommendations
1. Establishment of deposit insurance schemes
 DIS within all the territories 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
resolution agent
and should be expressly designated the
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Recommendations
2. Enhance collaboration among financial system safety
net partners (FSSN) – domestic and regional
 The roles and responsibilities of the 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 deposit-taking institution 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.
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Recommendations
3. Establish Legal powers for effective resolutions
 There should be a set of clearly defined rules based or statutory
trigger mechanisms for intervention and resolution of banks
 Resolution powers and options for banks should be
clearly
outlined in legislation
 There should be a designated/lead resolution authority and/ or
agent
23
Recommendations
4. Create
special resolution regime for insolvent
banks
 Assess adequacy of general insolvency laws/ framework for the timely
resolution of banks
 Law should allow for designated resolution authority/agent which should
have power to enter into cross-jurisdictional arrangements.
 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 .
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Recommendations
4. Create special resolution regime for insolvent banks
cont’d
 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
 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
25
Recommendations
5. Establishment of crisis management plans at
various levels:
 Institutional level – Individual Banks should develop internal recovery
strategies for crisis times
 Relevant authorities (supervisor, ministry of finance, deposit insurer
etc) - Crisis Management Plan
 National level – FSSN Partners
 Regional level – authorities should have the power in governing
legislation to share information. Establish MOU with regional
authorities.
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THANK YOU
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