Banking Bill should add stability to financial sector

If the proposed Banking Bill (2015) is passed, it would allow financial institutions within the Eastern Caribbean Currency Union to service their customers without hassle anywhere within the sub-region.

This, according to Prime Minister Dr Ralph Gonsalves, as he outlined the importance of said bill {{more}}before Parliament yesterday, March 16.

Describing it as a “central piece of legislation”, the Prime Minister explained that the “urgency” of the Bill arose from a number of banking issues that are specific to the subregion, namely: insolvency, liquidity, asset quality, and weak corporate governance at some banking institutions.

Added to this, he also said that the slow pace of recovery (within the region) from the effects of the global economic crisis continues to “contribute to the vulnerability of the commercial banking sector.

“Even though the existing law provides certain powers to the Central Bank, it is felt that the powers are not strong enough,” explained Gonsalves. “That is why it is important to address these deficiencies, so that we can prevent any undermining of the stability of the financial sector.”

Having had its first reading before Parliament on March 3, 2015, the proposed reformation would provide for the “regulation of banking businesses and the establishment of a single banking space,” and for incidental and related matters – consistent with the revised Treaty of Basseterre.

Gonsalves said that the proposed Bill would strengthen the supervisory role of the Eastern Caribbean Central Bank (ECCB) by way of four main reforms. That is:

– strengthen the framework for approvals for holding or acquiring more than 20 per cent of the total voting rights of a local financial institution;

– support/strengthen the powers of consolidated supervision;

– Increase the minimum capital of banks from EC$5 million to $20 million; and of credit institutions from $1 million to $5 million;

– give the ECCB the authority to require the establishment and licensing of financial holding companies in respect of banks that “may be part of a corporate group whose activities may be an eclectic mix of financial and non-financial institutions.”

The Prime Minister also said that as part of this resolution strategy, an asset quality review of the commercial banks within the ECCU is currently being undertaken, and is scheduled to be complete by the end of this month.

“If we are going to require certain interventions, we need to make sure that we have the legislation in place to provide proper support to an asset quality review,” he pointed out.

The Banking Bill (2015) will address four major areas of concern in the banking industry – which include the inability of the ECCB to secure the implementation of “corrective action”; obstacles encountered by the ECCB in securing the resolutions of “troubled banks”; challenges associated with the “increasing complexity” in the corporate structure of financial institutions; and the lack of centralization of the licensing authority.

Centralization of the licensing authority

In his address, Gonsalves pressed upon Parliament how imperative it is is to establish a “single financial space” to aid in the recovery from the effects of the global economic crisis, highlighting the fact that the proposed bill would transfer licensing authority to the ECCB.

“At present, there are eight distinct ministerial licensing authorities in eight countries… which span several jurisdictions in the Currency Union,”

he outlined. “They are considered to be separate financial institutions, which is not consistent with the concept of a single financial space.”

Leader of the Opposition Arnhim Eustace responded to the proposed bill reform, agreeing that it was a necessary piece of legislation and would set a framework that is “better” than its predecessor.

“You can’t have an economy without banks… so there is need for supervision and guidelines,” he stated.

However, Eustace said that even more important than the bill reform is the need for the OECS countries to improve on growing their respective economies again.

He explained that even though the Canadian banking institutions now dominate our subregion, they have been “tightening up” and cutting back on their presence regionally. Eustace also said that it is vital that the economies of the OECS states be boosted to keep said institutions operating within the region, as they contribute significantly to our overall growth.

“We must have a growing and thriving economy for the banks to grow.”(JSV)