By DeLisle Worrell
Governor, Central Bank of Barbados
at a Conference for Financial Institutions
Lloyd Erskine Sandiford Centre
October 26, 2010
The Central Bank’s philosophy, from its inception, was of collaboration with banks and other financial institutions to achieve our shared goals of efficient financial services for all Barbadians, with full coverage of all their financial needs. We are not always at one with banks or with the public on the best way to achieve this goal, but clearly it can only be achieved by mutual agreement on policies that a) provide safety for deposits, insurance policies and investments, which is the responsibility of the regulators; b) provide best value for depositors, investors and the insured; c) are sufficiently profitable to the providers that they continue to have an interest in providing these services in Barbados; and d) channel finance to the needs of businesses and households. Discussions such as those we will have an opportunity to undertake today are an essential part of the process of coming to a common understanding of the arrangements which best satisfy all these goals.
Today’s conference is an evolution of a quarterly forum for discussion of the economy and banking system developments among the central bank and deposit-taking institutions, which has been a feature of the relationship between us since the Central Bank first began operations. Over the past decade it has been recognised the world over that the scope of central banking has grown to encompass the stability of the financial system as a whole, including insurance companies, the stock exchange and other institutions which the Central Bank does not itself supervise. In recognition of this, about a year ago the Central Bank expanded the invitation to its periodic discussions to members of the wider financial community. Recent meetings of the group have shown that our discussions are enriched by presentations of background material on specific issues which are the subject of discussion and debate. This suggested to us the idea of a full day of discussion, with presentations on specific topics on which we need to share insights with a view to achieving a meeting of minds on the way forward. That is our mission today.
We have with us today representatives of all the banks and the major players in the rest of the financial sector which provides services for Barbadians (to distinguish from the banks and other institutions in the international sector, providing services from Barbados to non-residents). Also joining us today are the regulators for all other financial services. We will focus on six topics: the implications for the financial sector of the recent economic developments; an overview of financial sector performance and risk exposures; the operation of the arrangements for foreign exchange purchases and sales among commercial banks and with the Central Bank; the availability and cost of funds in the banking system, and the demand for funds by credit-worthy borrowers; recommendations that might be made to Government for further steps in the liberalisation of exchange controls; and developments in the upgrade of our system of payments.
Last week we released the update of economic performance in Barbados to the end of the third quarter. As you will have heard, economic output remains stagnant, even though the economy has been kept stable. Today we will discuss what we have seen of the effects of this performance on the financial sector, and get feedback on how the picture looks from the perspective of the financial institutions.
Earlier this year we announced the establishment of a financial stability unit at the Central Bank, to conduct surveillance of the financial sector as a whole, and to sensitise us of any needs to strengthen the resilience of the financial system. The unit, which is in its formative stages, will make observations on the evolution of the financial system, and its major characteristics.
We have observed changes in the patterns of transactions in foreign exchange among banks and between the Central Bank and commercial banks over time, in response to the possibilities opened by communications technology, and as banks revamp their treasury operations. Today we have an opportunity to discuss these changes, and to consider what new guidelines, if any, should be put in place to ensure that the market continues to function efficiently.
Whenever we meet with commercial banks the question of the availability and cost of funds comes up for debate. We hope to advance that debate today through a common understanding of the possibilities and effectiveness of alternative policies for the management and profitable employment of surplus funds in the banking system.
In recent years the pendulum of international opinion has swung back towards the use of exchange controls as a tool to stabilize the financial system. At a seminar organised by a renowned organization, the Group of Thirty, which was held in Washington DC during the recent meetings of the IMF and World Bank, no less a person than Ben Bernanke, the Chairman of the Board of Governors of the Federal Reserve System, admitted the usefulness of controls for this purpose. This view was strongly supported by Alberto Moreno, President of the Inter-American Development Bank. In Barbados we use controls principally to phase in large one-time payments, and to reassure the foreign exchange market against the activities of speculators. However, we have inherited a number of controls on relatively small transactions, which need to be reviewed in order to reduce costs and increase efficiency in foreign transactions.
I am delighted to welcome my colleague and friend, Sir Dwight Venner, Governor of the Eastern Caribbean Central Bank (ECCB), who joins us today to reflect on the challenges which our OECS neighbours face. Our financial sectors remain as strongly intertwined today as they have ever been, and we need to work even more closely with the ECCB, as we address the financial stability issues which this closeness implies.
Finally, the upgrade of our payments systems is a work in progress, and we will take this opportunity to explore how best we may organise to use the new systems to speed up payments in a secure and cost-effective way.
Click on the below links to review the videos:
Welcome Remarks delivered by Governor, Dr.DeLisle Worrell at one-day seminar for officials in the financial services sector.
Sir Dwight Venner, Governor of the Eastern Caribbean Central Bank delivered the luncheon Address financial services sector.