Last weekend’s collapse of two banks in the US set off a train of events that should be followed carefully around the world, but especially in the Caribbean.
The reasons for the failure of California’s Silicon Valley Bank (SVB) and New York’s Signature Bank are not as important, at this point, as the speed with which US regulators acted and the reason for the speed.
It was announced that Silicon Valley Bank was in trouble last week and by Sunday US Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC chairman Martin J Gruenberg were in a position to outline measures that mitigated the possible fallout from the failure of the banks.
The most important announcement on Sunday was all the deposits at both the failed banks would be deemed to be insured, even though the legal limit of deposit insurance in the US is US$250,000.
And the US President Joe Biden made an address from the White House on Monday, to reiterate that the US Government would stand behind the depositors of the failed banks, whatever it took.
The action by the top regulators and politicians in the US was meant to stop the run by depositors of SVB on the bank. In the US, they understand that trouble in a relatively small bank can quickly mushroom into decision-making that threatens the financial health of the entire financial system.
There is an understanding that even the 16th largest bank in the US, as SVB was reported to be, cannot be allowed to disrupt the confidence of depositors that they will always have access to their money.
All depositors must be able to go to sleep at night knowing that they will have access to life savings when they wake up in the morning.
That confidence must not be trifled with by a long-time newspaper columnist who can flippantly describe local commercial banks as “big pressure,” in making the point that “the pressure points are so many and so cruel, especially for older citizens, that some banks are at risk of replacing lawyers as the top hate-figure.”
This columnist wrote that his readers would be disappointed if he did not join their complaints about the fees for online transactions and for paper statements.
Fees for online transactions and for paper statement are, of course, a sore topic among members of our complaining class, who have become emboldened by their easy access to social media platforms to vent against local banks.
In my view, any customer who is upset by a fee charged by a local commercial bank is free to take their business to a competing bank.
Also, it is clear that the Central Bank, which regulates T&T’s financial institutions, has imposed much more strenuous reporting requirements by local commercial banks. Such compliance requirements mean more staff, more auditors and more costs in compiling and submitting reports to the regulator.
Are the financial institutions unjustified in passing on those compliance costs to their customers?
Here in T&T, the Central Bank’s Inspector of Financial Institutions (IFI), Patrick Solomon, and his team, have been hard at work, in the background, seeking to ensure that T&T’s commercial banks, non-bank financial institutions and insurance companies are in good financial health.
In the last three years or so, much of the work of the IFI, and his team, has been focused on ensuring that T&T’s financial institutions “have instituted robust risk management practices to identify and manage all material risk exposures, including ensuring that adequate capital is available to support identified risks.”
That quote is from a circular letter issued by Mr Solomon to all financial institutions on December 22, 2022. In the circular letter, Mr Solomon noted that the Central Bank had implemented Pillar 2 Internal Capital Adequacy Assessment Process (ICAAP) of the Basel II/III framework.
The financial institutions were reminded that the Central Bank issued the ICAAP Guideline in November 2020 to guide this process and provide the industry with the minimum expectations for the ICAAP submissions.
The purpose of the letter was to inform the financial sector, “based on review of the ICAAPs to date as well as feedback from the licensees and financial holding companies,” that the Central Bank was extending the timeline for submission of the ICAAPs from four to six months after the end of the financial year of the regulated financial institutions.
On November 18, 2022, Mr Solomon told the financial sector that the Central Bank had developed a draft Liquidity Coverage Ratio Consultation Paper and reporting template (also relating to Basel II/III)
In that circular letter, the IFI noted: “As you are aware, the liquidity monitoring measures currently in place are inadequate for the monitoring of banking institution’s liquidity by the Central Bank.” The message there was institutions licensed pursuant to the Financial Institutions Act, 2008 and their financial holding companies (FHCs) “will be required to maintain a minimum LCR of 100 per cent.”
On August 4, 2022, the IFI dispatched a circular letter advising that the Central Bank was seeking to enhance its monitoring of licensees by requesting the submission of information on licensees’ top 20 borrowers and depositors on a quarterly basis.
Happy to be back home
When I resigned from One Caribbean Media last month, I was asked by a very astute executive there whether I was going home.
The idea that Guardian Media Ltd would be considered my “home” had never occurred to me. But, of course, it is.
May I sincerely thank all those who have welcomed me back to GML. I do look forward to continuing my contribution.