Thu | Sep 21, 2017

Lawmakers to debate super powers for BOJ

Published:Friday | September 11, 2015 | 9:00 AM
Bank of Jamaica, at Nethersole Place, Kingston.

A bill to create the

new oversight body for Jamaica's financial system and effectively establish the Bank of Jamaica (BOJ) as super regulator is to be debated in Parliament this month as an amendment to the Bank of Jamaica Act (BOJA).

The legislation would both establish the Financial System Stability Committee - FinSys - as well as codify new powers for the central bank, including the right to inspect firms.

It otherwise provides for the central bank to shore up financial institutions through loans and other credit facilities, as well as "emergency liquidity assistance" to vulnerable firms deemed by the Bank of Jamaica to pose a threat to the system.

FinSys may offer recom-mendations to the BOJ. Its job is to make regular assessments of the financial system and assess the links between the financial sector and developments in other sectors of the local and global economy. The committee is the organ through which information is to be exchanged for the monitoring of risks, and it is required to oversee the design and conduct of periodic stress tests.

The BOJ, under its own authority, will have primary responsibility for policing the financial system - referred to as "macro-prudential oversight". Consequently, the BOJA bill proposes to hand the central bank enhanced powers to initiate inspections among a wider constituency - inclusive of banking firms, lenders, financiers, money businesses, investment firms, securities dealers, private pension fund manager, insurance companies and any business designated as a financial service by the central bank governor.

Based on regulatory data, the banking system, securities and insurance markets alone are valued at just under $2 trillion by assets. Additionally, securities firms manage another $814 billion of funds, while the private pension market is worth $341 billion.

BOJ may request information relevant to its macro-prudential oversight function, and issue "rules standards and codes" pertinent to that role.

The legislation also proposes that the central bank establish and update a central financial system database, publish a financial stability report annually and prepare periodic special reports for the minister of finance.

The creation of BOJ as super regulator is meant to reduce risks highlighted during the 2008 global financial meltdown, and avoid another 1990s-style meltdown that ended up costing the Jamaican Government $40 billion under a system-wide domestic rescue plan that bailed out banks and insurance companies.

"Full responsibility for the nation's financial system stability is unclear where there are multiple supervisory agencies with none having the authority or mandate to oversee the links among different kinds of activities to address and recognise systemic risks," said Finance Minister Dr Peter Phillips in a memorandum attached to the BOJA bill.

Giving the BOJ "institutional responsibility" for stability addresses this deficiency and is in line with the international trend to locate the function within the central bank, said Phillips.

FinSys will be chaired by the governor of the central bank. Its other members will include another senior officer of the BOJ, the deputy supervisor of banks and financial institutions, the heads of the Financial Services Commission, Jamaica Deposit Insurance Corporation and the financial secretary in the Ministry of Finance. The finance minister may also appoint two others to the committee.