The fragility of financial institutions in the Caribbean: Dess Commerce International 1996-1997

For the past fifteen years, 133 of the 181 current members of the International Monetary Fund have experienced significant financial problems at some stage. Through their experience, it has been highlighted that chronic weakness and crisis in financial institutions can affect their overall economy. In particular, the Mexico Crisis is the most (striking) example and has released an abundance of literature on financial crises, their causes and consequences. Much research has been led among which we can find those of Gonzalez Hermosillo. Indeed, Gonzalez Hermosillo et al. have carried out a survey on deposit-taking institutions in the Caribbean. This paper applies his methodology, providing an analysis of the relationship between some characteristics specific to the firm, and more generally to the financial sector and economy, indicating a risk of financial institution failure, the probability of financial failure. These indices are microeconomic indices as the Cooke ratio, the size of the banks in term of assets, the classified debt to total loans, indices of the banking sector as a whole as the treasury bill rate, the foreign borrowing, the borrowing from the Central Bank, and macroeconomic indices as the real GDP, and the inflation rate. The survey assesses the impact of firms specific indicator ratios, banking systems ratios and macroeconomic factors on the financial sector and also tests, through the probit / logit specifications, the proposition that a financial institution's fragility is determined by those microeconomic and macroeconomic factors. The survey studies the case of Barbados.