Glenford Ysaguirre: From the global financial crisis to more robust
regulatory frameworks and resilient financial systems
Feature address by Mr Glenford Ysaguirre, Governor of the Central Bank of Belize, at the
Caribbean Group of Banking Supervisors XXIX Annual Conference, San Pedro Town,
16 June 2011.
* * *
A pleasant good morning to Mr. Cleviston Haynes - CGBS Chair; representatives from the
Association of Supervisors of Banks of the Americas (ASBA), the Office of the Supervisor of
the Currency (OCC), the US Department of the Treasury, the Federal Deposit Insurance
Corporation (FDIC); members of CGBS; participants of this, the twenty-ninth annual CGBS
conference. Ladies and gentlemen, let me join my staff in welcoming you to Belize and to
the, warm, friendly and scenic location of San Pedro, Ambergris Caye. It is indeed my
pleasure to have this opportunity to address this gathering today.
I understand that you have a very heavy agenda so my intent is to be very brief and not to
stray from the script as is often my wont. As leading entities charged with the supervision of
the financial sector, we all carry an enormous responsibility and one that ought not to be
taken lightly. Today, I see the work of the CGBS as one of the few shining examples of a
regional institution that does not seem to be afflicted with that, oh so common and familiar
malady I call the CARICOM MALAISE. This is that common condition where we meet a lot,
talk a lot, agree on a lot, debate a lot, and then we resolve not to do a damn lot. Let me give
you an example: Take our attempt to get members to adopt a single draft model Banking Act
across the region. While unanimously agreed to almost six years ago, it languishes in
suspension as formal acceptance by a few jurisdictions is as yet forthcoming with no
explanations for the protraction.
But, my purpose here today is not to dwell on the negative, but rather to plant an idea whose
time I think has come. I hope it will pique your interest sufficiently for you to forgive my
departure from the normal feature address format.
The theme for today's conference is very fitting and timely:
"From the global financial crisis to more robust regulatory frameworks and resilient
financial systems"
I like this theme because it is forward looking and is in perfect consonance with the idea I am
about to propose. This theme is saying to me that we must not be too engrossed in the
business of analyzing the past lest we forget to look ahead toward unchartered waters we
must yet traverse. I think that after three and one half years of meetings and conferences we
are all fatigued with an overload of hind-sight wisdom that offers perfect explanations for the
2008 global financial crisis that none or very few saw coming. The irony is that very few of us
saw the coming of the 2008 crisis because we were too busy analyzing the crisis before that
one. Now, the fact that the Caribbean went relatively unscathed from the global financial
crisis, except for the CLICO and BAICO experiences, is by no means an indication that we
were any better prepared; in my view it was mere lucky happenstance and this is what we
need to address in the future.
I am sure Caricom Heads of Government at their June 2009 meeting in Georgetown, Guyana
had this near miss catastrophe squarely in their rearview mirrors when they agreed on the
urgency of putting in place a strong framework for regional financial stability. Citing, among
other things, the CLICO and BAICO experiences, they tasked the Committee of Central Bank
Governors to prepare a proposal for the creation of a regional architecture for financial
stability for final consideration by the Council for Finance and Planning (COFAP). The
mandate was to accelerate the construction of a robust regional financial stability framework.
The Committee of Central Bank Governors set about this task diligently. First, they secured
funding from the Inter-American Development Bank for a Regional Financial Risk
Assessment Project under the aegis of the Caribbean Centre for Money and Finance (the
CCMF). Then, a three-day workshop for regional regulatory stakeholders was held in Port of
Spain, Trinidad on 3 to 5 March 2011 to discuss the requirements and actions needed to
develop the framework and to agree on the outline of the terms of reference for the planning
and implementation of a financial architecture that supports regional financial stability.
From all accounts, the workshop was well attended and yielded several recommendations on
governance and operational structure of a regional financial stability board. However,
progress on this project recently stalled as governors remain fundamentally at odds over a
few of the major recommendations, in particular:
• The recommendation for the CCMF to become the central reporting body for
financial stability;
• The legality of regional regulators sharing sensitive confidential information with a
non-regulatory body outside of members' jurisdictions; and
• The methodology and approach for the Regional Financial Risk Assessment Project.
On the matter of the CCMF serving as the central reporting facility, there were questions as
to its appropriateness, ability and capacity to manage such a task:
• Does it have the necessary financial and human resources?
• Do they have the required expertise, bearing in mind that this is a research
institution?
• How will the issue of legality and confidentiality be resolved?
From recent discussion and exchanges between governors at and after the 27 May 2011
Governors' caucus held in Bridgetown, Barbados it does not appear that we are anywhere
near to resolving these issues and a sub-committee of Governors was appointed specifically
to look into these issues, among others. So, when I was tasked by my supervision
department to make this feature address, these were some of the issues that governors were
still hotly debating and I became fearful that this very important project may also fall victim to
the dreaded CARICOM MALAISE.
It then dawned on me that the CGBS and not the CCMF may be the only salvation and the
ideal rescue vehicle for this project. In 1983, CARICOM Central Bank Governors envisaged
the need for an entity to spearhead the enhancement of regional banking supervision
practices in line with internationally accepted standards. Hence, the birth of CGBS, an
institution charged with charting the way forward for supervisors to maintain above-board
practices and equilibrium in regulating financial sectors across the CARICOM region. Since
then the CGBS has grown and accomplished much, and as I mentioned earlier, is one of the
few CARICOM institutions that actually produces real work in the true spirit and meaning of
regional integration. It is the obvious choice to be the central reporting facility and should be
the home of the financial stability project; financial stability review falls naturally within its
bailiwick.
What I am saying is that the time has come to legally establish the CGBS as CARICOM's
supranational financial regulatory authority. Such a structured CGBS would eliminate all the
concerns Governors now have about the appropriateness of the CCMF for this role in
particular the concerns on the legality of regional information sharing. Presently, the conduct
of CGBS members towards each other has been guided by a protocol based on mutual
respect and trust. There is a Members' Handbook and a recently signed Memorandum of
Understanding for regional cooperation though none of these are legally binding. In the
absence of proper legal authority, there is no real enforcement or disciplinary mechanism
and we must rely solely on peer pressure or moral suasion for compliance with the rules of
engagement.
While this structure may have been adequate in more prosperous and disciplined times,
indications already are that it will be severely tested in today's crisis prone environment. The
time has thus come for the CGBS to take on an even more substantive role. It must be given
the authoritative muscle in order to fulfill its mandate of establishing regional conformity to
international principles and best practices. The truth is that some of us already recognized
this need when we recently requested that the CGBS establish some form of mechanism to
resolve conflicts and disputes that may arise between members.
Accordingly, I would like to propose that the CGBS consider, among other things:
1. Establishing itself as a formal legal entity with bylaws, a Memorandum and Articles
of Association to which members must legally and financially subscribe. This would
provide substantial financing since almost every jurisdiction in the Caribbean is a
member of the CGBS.
2. Establishing a permanent secretariat with a dedicated staff. This can be
accomplished by us either agreeing to merge with or subsuming the financially
embattled CCMF. This move would reduce the need for regional Central Banks to
finance two separate institutions and provide the CGBS with a permanent staff
capable of handling the macro-prudential requirements of a financial stability review.
Currently, all CARICOM members participate in CGBS whereas only a dwindling
handful subscribe to the CCMF.
3. Establishing conditions for the entry and exit of countries as members of this body.
This would promote more disciplined behavior throughout the region and facilitate
orderly progress in adopting international best practices.
4. Establishing a mechanism to impose sanctions on members for non-compliance
with agreed standards.
5. Establishing an implementation plan for BASEL II across the region and the
establishment of financial stability boards by members, and
6. Establishing a Council to deliberate on disputes between members.
While this venture would require much acuity, it is the uncharted waters that we must
traverse. I am confident that it is doable; it is the natural progression for the CGBS and an
idea whose time has come. Having made my pitch, ladies and gentlemen, I must now
respectfully take my leave and allow you to get on with the business of the day. But before I
go I would welcome your thoughts and feedback on the proposed new role for the CGBS as I
intend to present this suggestion to the Committee of Governors for consideration.
Lastly, please allow me to thank you for your time and patience and wish you a productive
and successful conference.
Enjoy the rest of your stay in Belize and may God bless you.