The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor yesterday asserted The Bahamas “is advancing efforts” to guard against a domestic financial crisis with the authority set to oversee these efforts potentially formed “within the next six months”.

John Rolle, speaking to Tribune Business after the International Monetary Fund (IMF) released recommendations for strengthening the financial system and its institutions against potential collapse, said “a lot of the groundwork” has been done to create the Financial Stability Council that will drive implementation of these and other measures.

Explaining that the initiative aims to prepare the Bahamian financial sector and its participants “ahead of time”, so they know how to manage a crisis and avert possible failure, he added that individual institutions will also have “to develop a playbook” for when they themselves “come under strain” to facilitate recovery and prevent a wider systemic shock.

“The Financial Stability Council is one of the inter-agency co-ordinating mechanisms that’s recommended,” Mr Rolle told this newspaper. “We’ve done a lot of the groundwork and had discussions between the relevant regulators and Ministry of Finance. Those discussions are ongoing in terms of how we operationalise such a framework.

“A lot of the sketching of the framework is complete, and we think it could happen within the next six months or so. Possibly before that. Certainly we have already had consultation and follow-up conversations with affected regulators and the Ministry of Finance. We’re working our way through what the Memorandum of Understanding (MoU) looks like between our agencies.”

The Financial Stability Council’s membership will be comprised of financial services regulators, such as the Central Bank and Securities Commission, as well as the Ministry of Finance and other relevant government agencies and ministries. Its role will be to provide co-ordinated oversight of the financial services sector and allow for a collective response to any systemic threats.

Meanwhile, Mr Rolle said reforms to a wide range of financial services laws - the Banks and Trust Companies Regulation Act, the Central Bank of The Bahamas Act, Bahamas Co-operative Credit Unions Act and Protection of Depositors Act - are being crafted to address the recommendations and issues raised by the IMF in yesterday’s reports, which followed two technical assistance missions to this nation in November 2021 and the same month in 2022.

“Because of the technical assistance we have received from the IMF, we have a good road map so we are working to execute elements of this action plan,” the Central Bank governor said. “There is a lot of work that is being prepared around these pieces of legislation. We are very close to the end of the process. The next stage will be to make the appropriate recommendations to the Government on the kind of changes that need to be done. That work is advancing.”

Mr Rolle said the “main value” from the IMF’s work was its recommendations on how the Central Bank should interact with its bank and trust company licensees, and credit unions, in developing a regulatory framework governing how they - as well as the regulator - respond when they “come under strain” as well as “planning ahead for the worst case scenarios”.

These, he explained, could involve a financial institution having to place itself in liquidation as well as develop a strategy for its revival. Mr Rolle described it as “requiring financial institutions to develop a playbook for when they come under strain”, with the IMF also providing recommendations on the in-house skills the Central Bank requires to handle such situations as well as the co-operation needed with the Ministry of Finance and other regulators to cope with a “very stressful scenario”.

“It’s really making certain that we put in place the system in The Bahamas as other countries would typically have, so ahead of time we’re prepared to manage a crisis in the financial system,” the Governor told Tribune Business.

“We have a very robust supervisory framework. The most important thing for a country like The Bahamas is being able to supervise and intervene essentially in the kind of financial remediation that financial institutions need before they get into too much strain. As much preventative intervention as possible to steer financial institutions away from crisis is important for a country like The Bahamas.”

The IMF report found that, while the seven credit unions regulated by the Central Bank are too small to pose any systemic threat, the regulator’s options are limited should they fall into distress and face the threat of collapse. “The current law under which distress management and resolution can be undertaken is the Bahamas Co-operative Credit Unions Act 2015 (BCCUA),” the Fund said.

“The Central Bank has the capacity to take supervisory and resolution interventions for dealing with a credit union that is financially unsound or non-viable. Principally, the powers available to the Central Bank are to give directions to a credit union to require it to take remedial actions, to facilitate a merger with a financially-sound credit union, to facilitate the transfer of assets and liabilities of one credit union to another, or in the case of insolvency or capital deficiency, to initiate liquidation.

“The Central Bank does not have the authority to force a merger or business transfer, but can call a credit union board meeting that requires three-fourths of all the members of each credit union to approve an amalgamation or business transfer.” While the Central Bank can place a credit union into liquidation if it is insolvent, has a capital deficiency, cannot meet depositors’ demands or will inflict a loss on members, no other options are available to it.

Noting the proposed reforms to the Act to address these deficiencies, the IMF report added: “The legal framework for resolving failing credit unions is weak and needs to be strengthened. The necessary amendments include the need for well-defined resolution objectives anchored to depositor protection and financial stability; clear triggers for entry into resolution before the point of insolvency; powers for the Central Bank to (either itself or via a statutory administrator) assume control of a credit union; powers to apply resolution actions, principally focused on business transfer/purchase and assumption; and resolution safeguards, particularly the ‘no creditor worse off’ safeguard. The law also needs to enable the Central Bank to initiate and complete resolution without court approval, and without the need for a mandate from a credit union’s members.”