‘Too Big To Fail’ – Caribbean Version

Go Lean Commentary

The book Go Lean…Caribbean serves as a roadmap to implement the technocratic Caribbean Union Trade Federation (CU) and Caribbean Central Bank (CCB) to provide better stewardship, to ensure that the economic failures of the past do not re-occur.

What economic failures?

There were crises on 2 levels: the Global Financial Crisis of 2007 – 2009 and regional financial banking dysfunctions.

Global – The banks labeled “Too Big To Fail” impacted the world’s economy during the Global Financial Crisis. (See the VIDEO below on the anatomy and consequence of the Credit Crisis). Though the epi-center was on Wall Street, the Caribbean was not spared; it was deeply impacted with onslaughts to every aspect of Caribbean life (think: Tourism decline). In many ways, the crisis has still not passed.

Regional – The Caribbean region has not been front-and-center to many financial crises in the past, compared to the 465 US bank failures between 2008 and 2012.[a] But over the past few decades, there have been some failures among local commercial banks and affiliated insurance companies where the institutions could not meet demands from depositors for withdrawal. Consider these examples from Jamaica and Trinidad:

  • There was a  banking crisis in Jamaica in the 1990s. In January 1997, the decision was made to establish the Financial Sector Adjustment Company (FINSAC) with a mandate to take control and restructure the financial sector. FINSAC took control of 5 of the 9 commercial banks, 10 merchant banks, 21 insurance companies, 34 securities firms and 15 hotels. It was also involved in the re-capitalization and restructuring of 2 life insurance companies, with the requirement that they relinquish their shares in 2 commercial banks.[b]
  • For Trinidad, the notable failure was the holding company CL Financial, with subsidiaries Colonial Life Insurance Company and the CLICO Investment Bank (CIB). In mid-January 2009, this group approached the Central Bank of Trinidad and   Tobago requesting financial assistance due to persistent liquidity problems. The global financial events of 2008 combined with other factors placed tremendous strain on the group’s Balance Sheet. The CL Financial lines of business ranged from the areas of finance and energy to manufacturing and real estate services. The group’s assets were estimated at US$16 billion at year-end 2007, and it had a presence in at least thirty countries worldwide, including Barbados. Most significantly, the company held investments in real estate in Trinidad and the United States of America, and in the world’s largest methanol plant prior to its difficulties.

Welcome to the new Caribbean economy.

With the advent of the CARICOM Single Market & Economy (CSME), a more integrated region is expected to lead to greater linkages among the member-states of this existing economic union. The Go Lean roadmap calls for the deployment of the Caribbean Central Bank. So the issue of financial contagions will now have to be a constant concern for this regional sentinel.

The biggest threat of global financial contagions for this region has been dilution of net worth for the citizens of the US, Canada and Western Europe, the primary source of Caribbean tourists.

The prime directive of the CU is to optimize economic, security and governing engines to impact the Caribbean’s Greater Good, for all stakeholders: residents, visitors, bank depositors and mortgage-holders. This need was pronounced early in the Go Lean book, in the Declaration of Interdependence – (Page 13):

xxv.      Whereas the legacy of international democracies had been imperiled due to a global financial crisis, the structure of the Federation must allow for financial stability and assurance of the Federation’s institutions. To mandate the economic vibrancy of the region, monetary and fiscal controls and policies must be incorporated as proactive and reactive measures. These measures must address threats against the financial integrity of the CU and of the member-states.

The foregoing news articles shows the type of functions executed by technocracies: monitoring risks, assessing risk factors, managing leverage and regulating industry performances. This first article considers and welcomes new stewardship for the global “too big to fail” banks:

Title #1: New bank rules proposed to end ‘too big to fail’
By: Joshua Franklin and Huw Jones

CU Blog - Too Big To Fail - Caribbean Version - Photo 1BASEL, Switzerland/LONDON (Reuters) – Banks may have to scrap dividends and rein in bonuses if they breach new rules designed to ensure that creditors rather than taxpayers pick up the bill when big lenders collapse.

Mark Carney, chairman of the Financial Stability Board and Bank of England governor, said the rules, proposed on Monday, marked a watershed in putting an end to taxpayer bailouts of banks considered too big to fail.

“Once implemented, these agreements will play important roles in enabling globally systemic banks to be resolved (wound down) without recourse to public subsidy and without disruption to the wider financial system,” Carney said in a statement.

After the financial crisis in 2007-2009, governments had to spend billions of dollars of taxpayer money to rescue banks that ran into trouble and could have threatened the global financial system if allowed to go under.

Since then, regulators from the Group of 20 economies have been trying to find ways to prevent this happening again.

The plans envisage that global banks like Goldman Sachs and HSBC should have a buffer of bonds or equity equivalent to at least 16 to 20 percent of their risk-weighted assets, such as loans, from January 2019.

These bonds would be converted to equity to help shore up a stricken bank. The banks’ total buffer would include the minimum mandatory core capital requirements banks must already hold to bolster their defences against future crises.

The new rule will apply to 30 banks the regulators have deemed to be globally “systemically important,” though initially three from China on that list of 30 would be exempt.

G2O leaders are expected to back the proposal later this week in Australia. It is being put out to public consultation until Feb. 2, 2015.

David Ereira, a partner at law firm Linklaters, said that on its own the new rule as proposed would not end “too big to fail” banks and that politically tricky details still had to be settled.


Carney was confident the new rule would be applied as central banks and governments had a hand in drafting them.

“This isn’t something that we cooked up in Basel tower and are just presenting to everybody,” he told a news conference, referring to the FSB’s headquarters in Switzerland.

Most of the banks would need to sell more bonds to comply with the new rules, the FSB said. Some bonds, known as “senior debt” that banks have already sold to investors, would need restructuring.

Senior debt was largely protected during the financial crisis, which meant investors did not lose their money. But Carney said it in future these bonds might have to bear losses if allowed under national rules and if investors were warned in advance.

The new buffer, formally known as total loss absorbing capacity or TLAC, must be at least twice a bank’s leverage ratio, a separate measure of capital to total assets regardless of the level of risk.

Globally, the leverage ratio has been set provisionally at 3 percent but it could be higher when finalised in 2015.

Some of the buffer must be held at major overseas subsidiaries to reassure regulators outside a bank’s home country. Banks may have to hold more than the minimum because of “add-ons” due to specific business models, Carney said.

Elke Koenig, president of German regulator Bafin, said supervisors should orient themselves more toward the upper end of the 16-20 percent range, though banks may be given more time to comply.

Fitch ratings agency said banks might end up with a buffer equivalent to as much as a quarter of their risk-weighted assets once other capital requirements were included. Analysts have estimated this could run to billions of dollars.

Analysts at Citi estimated the new rule could cost European banks up to 3 percent of profits in 2016.

Citi said European banks would be required to issue the biggest chunk of new bonds, including BNP Paribas , Deutsche Bank , BBVA and UniCredit , with Swiss and British banks the least affected in Europe.

(Additional reporting by Alexander Huebner in Bonn, Editing by Keiron Henderson and Jane Merriman)
Reuters Newswire Service – Online Site (Posted 11/10/2014; retrieved 11/13/2014) –

Within the region, this second article considers the stewardship of one Caribbean financial institution in Jamaica and their lending practices:

Title #2: VMBS sees dramatic fall in foreclosures

CU Blog - Too Big To Fail - Caribbean Version - Photo 2VICTORIA Mutual Building Society (VMBS) recorded a three-quarters drop in property foreclosures last year.

It signals greater resilience by homeowners during an austere economy affected by heavy currency depreciation.

“The building society also enabled more members who were facing financial difficulties to retain ownership of their homes,” said VMBS in a statement about its year ended December 31, 2013. “Foreclosures on properties totalled 10 last year, compared to 37 the year before.”

Its non-performing loans, or loans unserviced for over 90 days, moved from 6.9 per cent at the beginning of the year to 5.6 per cent at the end.

“This improvement was the result of the continued drive to engage members who were having difficulty meeting their monthly mortgage payments, and working with them collaboratively, with the aim of helping them to bring their accounts current and retain ownership of their homes,” said Michael McMorris, chairman of Victoria Mutual, in his report for the group’s 135th annual general meeting held last month.

Greater focus was also placed on sales and services with mortgage disbursements up 133 per cent to $3.3 billion last year, the company indicated.

The Victoria Mutual Group, an amalgam of various financial, mortgage and insurance entities, made less after-tax surplus at $965.8 million for 2013 compared with $1 billion a year earlier.

The group’s pre-tax surplus actually increased year on year but its after-tax surplus dipped 4.2 per cent to $965.8 million as it was “adversely affected by the imposition of an asset tax on regulated financial institutions, which applied to both VMBS and VM Wealth Management,” stated the company.

The VM Group said that it aims to keep mortgage rates low by reducing administration costs, which augurs well for prospective homeowners.

Stated McMorris: “Internally, the year 2014 will see a continuation of a number of projects and initiatives geared towards improving efficiency and service delivery throughout the group.”

VM Group will seek to improve its financial advisory and brokerage services by growing the assets it manages on behalf of clients.

“To do this, Victoria Mutual Wealth Management Limited (VMWM) is working on new products to allow clients to customise their investment portfolios,” stated McMorris.

VMBS Money Transfer Services Limited (VMTS) plans to expand its services, both locally and overseas. The remittance company became profitable two years ago, and saw earnings grow by 61 per cent last year, due largely to an increase in fees, the company stated. VMTS also benefited from a 28 per cent increase in foreign exchange trading gains.

“Better gains on foreign exchange in part reflected a more challenging business environment last year, when depreciation of the Jamaican dollar was higher than 12 per cent,” stated the company.

VMBS allows its debit card holders free withdrawals at any of its teller machine or point-of-sale terminals.
Jamaica Observer Daily Newspaper – Online Site (Posted 08/20/2014; retrieved 11/13/2014) – http://www.jamaicaobserver.com/business/VMBS-sees-dramatic-fall-in-foreclosures_17381839

The related subjects of banking oversight and optimizing  financial governance have been a frequent topic for blogging by the Go Lean promoters, as sampled here:

5 Steps of a Bubble – Learning to make a resilient economy
Canadian Imperial Bank of Commerce failing investment in FirstCaribbean Bank
Bitcoin needs regulatory framework to change ‘risky’ image
Open the Time Capsule: The Great Recession of 2008
What Usain Bolt can teach banks about financial risk
Barbados Central Bank records $3.7m loss in 2013
US Federal Reserve Releases Transcripts from 2008 Meetings
Dominica raises EC$20 million on regional securities market
Fractional Banking System – How to Create Money from Thin Air
Book Review: ‘Wrong – Nine Economic Policy Disasters and What We Can Learn…’
10 Things We Want from the US – # 2: American Capital
The Erosion of the Middle Class

All Caribbean countries have experienced economic dysfunction: English, Dutch, French and Spanish territories. In line with the foregoing articles, the Go Lean book details many infrastructural enhancements/advocacies to the region’s financial eco-system; to facilitate efficient management of the economy … going forward:



Anecdote – Caribbean Single Market & Economy


Anecdote – Puerto Rico – The Caribbean’s Greece


Economic Systems Influence Individual Choices


Improve Sharing


Confederating Non-Sovereignty


Facilitate Currency Union/Co-op of Caribbean Dollar


Fostering a Technocracy


Caribbean Central Bank


Deposit Insurance Regulations


Securities Regulatory Authority


Modeling the European Union / Central Bank


Lessons from 2008


Anecdote – Caribbean Currencies


Growing the Economy


Creating Jobs


Better Manage Foreign Exchange


Improve Credit Ratings


Foster Cooperatives


Banking Reforms


Wall Street – Capital/Securities Market


Impact the Diaspora


Impact Retirement – Need for Savings


Help the Middle Class


Re-boot Jamaica


Appendix – Alternative Remittance Modes


There is no doubt that there has been mis-management of the Caribbean economy in the past. Consider the example of Jamaica; their currency has suffered from many de-valuations and depreciations; an average amount of $2.50 a year since the 1970’s; trading at 87-to-1 US Dollar; (at the time that Go Lean was composed – November 2013). Social Anthropologist posit that when societies come under duress, the communities have 2 choices: ‘Fight” or “Flight”. How have the countries responded that are cited in this commentary? They have chosen “flight”. A previous blog reported an average of 70 percent brain-drain rate across the region; with Jamaica at 85% and Trinidad at 79%.

Now is the time for change; time for new stewards of the Caribbean economy, security and governing engines. It’s time for the CU/CCB. We must prove that we have learned from the past. See the VIDEO below on the anatomy and consequence of the Credit Crisis.

The purpose of this roadmap is to provide that new stewardship. A lot is at stake: the destination for the hopes and dreams of the Caribbean youth. No more flight! We must act now and make the Caribbean, a better place to live, work and play. 🙂


Appendix Video: – The Short and Simple Story of the Credit Crisis – http://youtu.be/bx_LWm6_6tA

Source References:

[a]. https://news.yahoo.com/facts-numbers-us-bank-failures-183852568.html

[b]. http://www.centralbank.org.bb/WEBCBB.nsf/WorkingPapers/DB0CF759B9E97FB9042579D70047F645/$FILE/Exploring%20Liquidity%20Linkages%20among%20CARICOM%20Banking%20Systems.pdf

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