Wed | Nov 21, 2018

Horace Levy | BOJ impotent, banks unrepentant

Published:Wednesday | August 29, 2018 | 12:00 AM

Finance Minister Nigel Clarke's publication of the Bank of Jamaica's (BOJ) August 7 report to him has been rightly welcomed (Gleaner editorial, August 27), especially as now it is to be standard procedure. This 20-page report, summarised with fair justice by McPherse Thompson in last Sunday's Gleaner (August 26), is a technical and complex document. It comprehensively lays out the principal components of current monetary policy, vigorously pursued by BOJ Governor Brian Wynter.

The focus of the report is inflation, past and projected, and it is within that context that the behaviour of the banking sector that is of wide public concern, comes up. Governor Wynter singles out for acknowledgement (Section 11) that the BOJ's interest-rate policy has not been passing through into the credit practice of the banking sector - "... Not performing optimally" is the understated wording.

This is attributed to deep-seated structural factors, and five are listed - fiscal dominance, dollarisation, limited competition, excess liquidity, and underdeveloped FX and money markets. As the report goes on to detail, however, these factors have been largely dealt with. In particular, the central bank set up a working structure for sending to the market clear and regular signals of its direction and doings.

Yet, the commercial banks have still failed to adjust their credit rates in keeping with BOJ's rate. Jamaica aspires to be a developed country. Well, to take an example, the Bank of Canada's rates, successively this year, of 1.25% and 1.5% have been matched within hours by lending rates in financial institutions of 3-4% or 4-5%. Here in Jamaica, after months of a BOJ 2% rate, our big banks still hold to double-digit rates. Certainly, this is not because of some financial inability - profits are multibillion.

Wanting in the BOJ report is the impact of this failure on inflation and, therefore, the urgent need for effective action to move the banking sector. Exhortation and reason have been ignored.

 

LEGAL POWER LACKING

 

State institutions in developed countries do not hesitate in such situations, when the market bucks, to take regulatory steps. For them, free-market ideology is no god when money crunch time arrives. If, as appears to be the case, Jamaica's central bank lacks the legal power to bring commercial banks into line, what legislative or other action is this administration planning? We must be told. We need to know.

In addition, consumer protection is taken seriously in developed countries. In the US, for example, through its 40-year-old Community Reinvestment Act, several federal agencies monitor the country's thousands of banks daily to ensure that communities and individuals have access to bank credit and loans.

The two things that must be avoided in this matter are politicisation, to which Minister Clarke referred, and postponement, which we in this country habitually practise, turning yam hills into Alps.

We don't want with this issue what happened to MP Fitz Jackson's highly praiseworthy effort over bank fees - dumped in Parliament with a put-off of legislation not heard of since.

- Horace Levy is a human-rights advocate. Email feedback to columns@gleanerjm.com and halpeace.levy78@gmail.com.