The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Central Bank is gaining powers to appoint "a statutory administrator" over failing or "unsafe" banks, Parliament was told yesterday.

K Peter Turnquest, pictured, deputy prime minister, unveiling a three-strong package of Bills to strengthen the financial services regulatory regime, said the legislative reforms were designed to better protect depositors and the wider financial system from the threat posed by poorly-run financial institutions on the verge of collapse.

He said the reforms, as laid out in the Central Bank of the Bahamas Bill 2020 and Banks and Trust Companies Regulation Bill 2020, were based on recommendations made by the International Monetary Fund (IMF) in its last reviews of The Bahamas' financial sector that were carried out in 2012 and 2019.

And they also bring The Bahamas into line with international best practice as set out by the Financial Stability Board (formerly the Financial Stability Forum) following the 2008-2009 global financial crisis, Mr Turnquest said yesterday.

"Given the impact that a failed institution could have on financial stability, together with the need for swift intervention by the resolution authority to address systemic and other issues where an institution might be facing imminent failure, the Central Bank ultimately proposed an administrative approach to resolution," Mr Turnquest said.

"The administrative approach, while protecting the interest of depositors, preserves the rights of shareholders and creditors to seek legal redress if, following an adverse review by an independent valuer, they remain of the view that the resolution process caused them unreasonable losses."

The deputy prime minister said the Central Bank of The Bahamas Bill establishes the regulator as "the sole resolution authority" for failing bank and trust company licensees, while also giving it the power to create "bridging entities" that would temporarily manage the assets of troubled institutions during their work out.

The Bahamas has substantial recent experience with bank bailouts/rescues as a result of the Bank of The Bahamas saga. With two bailouts, requiring government support of $100m and $167.67m, respectively; a $40m "rights issue" that had to be totally taken up by the Public Treasury; and continued annual outlays of around $2.5m to fund the Bahamas Resolve vehicle's interest payments to the bank, rescuing Bank of The Bahamas can conservatively be estimated as having cost taxpayers well north of $300m and counting.

The reforms unveiled yesterday are designed to limit such future taxpayer exposure, Mr Turnquest said. He added that the "substantive provisions" dealing with the Central Bank's enhanced intervention ability are contained in the Banks and Trust Companies Bill.

"For expediency of financial stability and protection of depositors, resolution of failed financial institutions would follow an administrative process with the Central Bank empowered to prepare a resolution plan and to appoint a statutory administrator to oversee the recovery or liquidation of the entity if it is determined by the Central Bank that the entity has engaged in unsafe practices in such a manner that weakens the bank's condition, threatens depositors' interest or dissipates bank assets," Mr Turnquest said.

He added that the costs incurred by the statutory administrator will be borne by the subject bank, who will have the ability to carry on or discontinue its operations; stop or limit payment of the institution's obligations; remove all offices or directors; preserve and safeguard assets; and oversee a recover plan or the bank's sale/merger.

The "bridging entity" referred to by Mr Turnquest would operate in similar fashion to the Bahamas Resolve special purpose vehicle (SPV), which played a key role in the Bank of The Bahamas bail-out.

Such an entity would be licensed for two years, with its life able to be extended for a further three. The Central Bank will thus be able to own shares in a troubled bank through such a "bridging entity" for up to five years, with the latter used as a vehicle to dispose of assets and liabilities as the statutory administrator sees fit.

The Banks and Trust Companies Bill also allows the statutory administrator to transfer the troubled bank's assets, rights and liabilities to a specially-incorporated asset management vehicle.