jwala rambarran : strengthening the national financial safety net – a new agenda for the deposit insurance corporation of trinidad and tobago remarks by mr jwala rambarran, governor of the central bank of trinidad and tobago and chairman of the deposit insurance corporation of trinidad and tobago, at the 25th anniversary celebrations of the deposit insurance corporation of trinidad and tobago, port of spain, 5 november 2012. * * * ladies and gentlemen, on behalf of its board of management and staff, i extend a sincere welcome to the 25th anniversary celebrations of the deposit insurance corporation ( dic ). anniversaries have a special significance for society. children love to celebrate their birthday each year, and society often honours great people with a holiday on their birthday, even long after they have departed into the history books. wedding anniversaries are also significant shared milestones. ladies and gentlemen, the dic ’ s “ silver ” anniversary celebration comes at a time when the financial safety net has once again become a topic of prominent discussions, both at global and national levels. indeed, i find it almost uncanny how the conditions impacting recent disruptions in trinidad and tobago ’ s financial safety net, almost mirror the circumstances surrounding the origins of the dic some 25 years ago. regulatory failure back then, you may recall that the trinidad and tobago economy was painfully adjusting to the end of its second energy boom. the sharp contraction of economic activity, declining incomes and job losses partly contributed to the failure of many non - bank financial institutions in the mid - 1980s. but the more causative factors for the non - bank crisis seemed to be absence of regulation, weak managerial competence, poor or non - existence credit risk management and concentrated lending. as charles de silva opined in his october 1990 article on “ the law and the central bank : issues and implications for banking supervision in trinidad and tobago ”, that was presented at the 22nd annual conference of the then regional programme of monetary studies, “ the non - bank crisis in trinidad and tobago immediately called into question the capacity and competence of the regulatory authority. but although there were limitations in regulatory capacity, the major and more decisive weaknesses were readily seen to be the inadequacies of the legislation itself. ” unfortunately, the collapse of several finance companies and trust and mortgage finance companies was not averted. it is difficult, however, to know how long it took the officials at the ministry of finance and the central bank to recognise the impending danger of the sheer size and rapid growth

of non - bank activity in the economy. a heavy public outcry over the tardiness and reactive response on the part of the ministry of finance and the central bank to protect their deposits, eventually led to the formation of the dic in september 1986, more than 5 years after the financial institutions ( non - banking ) act took effect in mid - 1981, and more than 7 years after the non - banking act was passed and assented to in 1979 but never proclaimed due to a still unexplained failure to publish the necessary regulations. the cost of the late arrival of deposit insurance to trinidad and tobago was not only reflected in the heavy financial support to problem institutions, but in the erosion of public trust and confidence in the regulatory authorities. the fledgling dic immediately became responsible for managing the deposit insurance payout of four insolvent institutions. by may 1993, the corporation would oversee the closure of four more failed institutions. nonetheless, the dic managed to successfully discharge its mandate and to contribute to depositor confidence in the safety of their funds held in member financial institutions. bis central bankers ’ speeches impact of global crisis on national safety nets ladies and gentlemen, as we fast forward to the present, our experience of the current global financial crisis points to some limitations of existing national safety nets for safeguarding financial stability. deposit insurance, a key element of the national safety net, has proved to be inadequate at alleviating financial distress in many countries. you may recall that when the crisis erupted at northern rock in the united kingdom, the u. k. authorities were eventually forced to introduce a comprehensive guarantee for depositors and creditors to calm the markets and general public. authorities in ireland were also compelled to institute blanket guarantee schemes for virtually all bank liabilities, amid fears that the entire irish banking sector was about to fail. moreover, the collapse of lehman brothers highlighted the importance and urgency of establishing a legal framework for dealing effectively with resolution of cross - border financial entities. at its summit in pittsburgh in october 2009, the g - 20 leaders called for the development of “ resolution tools and frameworks for the effective resolution of financial groups to help mitigate the disruption of financial institution failures and reduce moral hazard in the future. ” last year, the g - 20 leaders endorsed an international standard – the financial stability board ’ s key attributes of effective resolution regimes for financial institutions – that lays down what resolution regimes need to look like in different jurisdictions around the world without severe systemic disruption and without exposing