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Central bankers crafting regional bank solvency plan

Published:Wednesday | March 31, 2010 | 12:00 AM
Brian Wynter, governor of the Bank of Jamaica. - File

Governor of the Bank of Jamaica Brian Wynter is pressing for cooperation among regional financial regulators on the policing of banking groups whose operations straddle jurisdictions, while reiterating that a bank insolvency law was under consideration here.

The region's central bankers are also working on a plan, whose implementation, Wynter said, is somewhat challenged by differences in the financial architecture and regulatory authority across countries.

"It is also proposed that the plan will address principles underlying preparedness during normal times, systemic risk assessments, crisis identification, how and when to invoke procedures and the adoption of region-wide communication strategies," said Wynter.

His appeal made last week at the three-day Regional Technical Assistance Conference on Bank Insolvency in the Caribbean is similar to one by Trinidad's central bank chief Ewart Williams who, in early March, warned that a c regulatory framework is needed to monitor cross-border companies if another CLICO/CL Financial collapse is to averted and to guard against what he called 'regulatory arbitrage' by big companies trying to beat the system.

Monitoring system failure

Ewart said at a financial workshop in Port of Spain that the financial conglomerate's collapse was due in part to a failure of proper monitoring systems in several Caricom countries, which he described as rudimentary in some cases and non-existent in others.

Inside Jamaica, new laws are pending that would allow Bank of Jamaica to regulate a broader swathe of financial corporations and where applicable, monitor their parent operations, taking the central bank's remit beyond 'deposit-taking' institutions.

Current law delineates its function to oversight of deposit-takers — banks, merchant banks and soon, credit unions — while the Financial Services Commission oversees the pensions, insurance and securities sectors, including the stock market.

Wynter said at the March 24-26 bank solvency conference, hosted by Jamaica Deposit Insurance Corporation in Montego Bay, that lawmakers should make a priority out of the development of a regional crisis management plan for regulators and policy makers.

Central bankers in the Caricom bloc, he said, are already devising a plan relative to banking enterprises, and would be signing a memorandum of understanding once the parties devise the mechanisms to make the plan workable.

"The plan is intended to address crises that involve illiquidity situations, or the ensuing insolvency of, at least, one member of a banking group," said the BOJ governor.

Still to be worked out is the sharing of costs among participating central banks when action is taken to limit contagion, how to address situations under laws that are yet to be harmonised, such as exchange controls, "that would restrict or inhibit the flow of funds to a distressed centre in the event of either a private sector crisis resolution or a collective public sector 'bail-out', and the broader legislative landscape that allows each jurisdiction different levels of regulatory and supervisory authority.

JIS and Gleaner reports