Banking – Is it a Scare Tactic?

The argument is that the ECCB Banking Bill 2015 introduces prohibitive capital adequacy requirements, unduly high liquidity limit and punitive sanctions against poor corporate governance. The management of the monetary authority has tended to emphasize the need to prevent a systemic collapse in order to protect small depositors. The call to protect our depositors has been the response for seemingly objections that are raised in the ECCB Currency Area. The countries in the currency area are Anguilla, St Kitts and Nevis, Montserrat, Antigua and Barbuda, The Commonwealth of Dominica, Saint Lucia, St Vincent and the Grenadines and Grenada. 

A scare tactic is a strategy intended to manipulate public opinion about a particular issue by arousing fear or alarm. The scare tactic may be conventional practice in sports and warfare but should have no place in modern banking and finance. In traditional societies where patrimonial leadership lingers, it is still tolerable because it feeds on selfishness, greed, individualism and ambition.  In small markets, public officials use their offices to punish dissenters by denying them access to public services, representation and participation. They use scar tactics to influence party loyalty, political attachment and even market behavior.

However, when an institution or person of responsibility attempts to use scare tactics to coerce the banking community to fall in line with a banking regulation, it is certainly not acceptable – not tolerable in a modern knowledge-driven society. Why it would not be acceptable? It signals a desperation to get one’s way; suggests an absence of mutual trust if not a betrayal of public trust; and, to the purist, a willful intention to deceive or manipulate.  When such negative tactics are employed by a statutory institution, it points to an erosion of reputational capital (goodwill). This was (and remains) the cloud of suspicion that surrounds the campaign by the Eastern Caribbean Central Bank to influence the passage of the Banking Bill 2015.

If the sub-regional institution is using scare tactics to get approval from the eight member parliaments of the Eastern Caribbean Currency Area on the basis of the need to protect depositors, it is certainly getting the desired response.  That is true! The new Team Unity government announced on July 28, prior to the passage of the Bill, that customers and creditors who lost money when the Bank of Commerce closed 30 years ago are in line for an EC$15 million (US$5.5 million) payout.

Let us examine the media’s allegation. Is there anything to strongly suggest that the underlying motive of the Banking Bill 2015 is the protection of depositors? The Eastern Caribbean Central Bank (ECCB) crusades for the passage of the bill on the basis that depositors’ savings are at risk, and the bill must be passed in order to roll out the much needed deposit insurance program.

What has been the ECCB’s posture on the establishment of a deposit insurance for banks? Since the establishment of the ECCB in 1983, the management has refused all research recommendations in favor of establishing deposit insurance and paid-up capital for foreign incorporated banks, as is required for locally incorporated banks. The 2008 financial crisis led to the failure of a large number of banks in the United States. The Federal Deposit Insurance Corporation (FDIC) closed 465 failed banks from 2008 to 2012. Given that development, the management, board of directors and council took a long time to warm up to the idea. However, we need to be reminded, ultimately, our deposits in the banking system are protected by God. The psalmist warns of danger from insidious schemes of men, uninvited troubles, physical attacks, sickness and disasters. And concludes, the Lord protects those who trust in Him (Psalm 91). What has brought about the paradigm shift?

It does appear that there are more concerns over capital adequacy, the need to streamline the locally incorporated banking sector, the capacity for enforcement and, boosting ECCB’s balance sheet.

weekend-bankingFirst, under the proposed bill, foreign incorporated banks (foreign banks) are not required to pay the $20 million paid capital as is required from locally incorporated banks (domestic banks). While the ultimate goal of the ECCB is to secure deposits in the banking system, if not intelligently and efficiently administered, the Banking Act 2015 could hurt the very same depositors who are the shareholders of domestic banks. Why is that so? The new regulation will increase the cost of doing banking business so that it could become prohibitive for poorly performing small banks to meet the requirements unless they can consolidate or merge. Financing new required capital adequacy thresholds, regulatory requirements, deposit insurance premiums and corresponding banking services could easily force some small banks to exit the market.

Second, the removal of the Minister of Finance from the approval process, as well as the revocation process (the Minister represents the state), effectively removes the State from the licensing process, conferring absolute power to a regional institution, which is not inextricably connected to the Ministry of Finance. You see, the central bank knows that this provision is critical to give effect to the first provision above.

Third, the garnishing of the paid-up capital appreciates the central bank’s balance sheet, so that it has less worries about poor investment returns. The $20 million paid up capital will be paid to the central bank rather than the government in whose jurisdiction the bank operates. The usual practice is for locally incorporated banks to invest the currently required $5 million in government capital market instruments be it treasury bills or bonds. This obviously provides much needed cash flow for many governments, which have been experiencing cash flow problems since the 2008 economic and financial crisis.

Forth, clauses 77-96 give the central bank authority to exercise remedial powers against board of directors, management and officers of the bank extending to dismissal. In Starry Benjamin vs Caribbean Commercial Bank (CCB), the courts found that the Central Bank cannot void a contract entered into with a licensed bank even when under its management.

Provisions that give the central bank more supervisory powers feature more prominently in the bill than deposit insurance. It does appear that deposit insurance is not very high up the ladder of importance for the ECCB. 

Additionally, if small depositors are so important to Management, Board of Directors and Council, can’t the central bank exercise its powers to regulate banking fees, penalties and interest rates on loans? What is the road block? Remember, “I can do all things through Christ who gives me strength” Philippians 4:13, NIV.

Peter Adrien is an author, business coach, financial counselor, economic adviser and columnist. Visit: Contact him via email:” target=”_blank”>; phone: (869) 668-9752 (St Kitts & Nevis) or (305) 848-7604 (USA); twitter: @goadriens; Facebook:




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