Port-of-Spain -- Dec. 17, 2008 -- As you know, the first round impact on the Caribbean financial system has been fairly limited for several reasons.

For one thing, our banks had not invested heavily in sub-prime mortgages and secondly, credit expansion of our financial institutions is based on deposit mobilization and only marginally on foreign loans. Some observers see our financial resilience as a reflection of the region’s limited integration in global financial markets (which has turned out to be a benefit, this time around).

Of the countries in the region, Jamaica was perhaps the most seriously affected because of the decline in the value of its global bonds, much of which were held by domestic commercial banks. The Bank of Jamaica had to establish a US$300 million facility to provide assistance to the commercial banks. Jamaica, however, continues to face capital outflows and exchange rate pressures.

Of course all our economies are now suffering the effects of the crisis through the trade channel, but that’s a separate discussion. In terms of financial stability, what the crisis has certainly done is to remind us of the vulnerabilities of our financial sectors, underscoring the urgency to take corrective action. For several years, we in Trinidad and Tobago had recognized the need to tighten financial sector regulation and supervision, and we have been doing it but “at our own
good pace”, which is a wee bit faster than very slow.

After many years of discussion and preparation the Parliament finally approved a new Financial Institutions Act on Tuesday; we are working on a new Insurance Act (the current one dates back to 1980) and new Securities, Pensions and Credit Union legislation is also expected over the next one to two years.

There is no doubt that our financial legislative framework is woefully inadequate and urgently needs to be upgraded. But the lesson from the crisis is that while robust legislation is certainly necessary, it is clearly not sufficient. So as we move more aggressively on the legislative front to bring our legislative infrastructure in line with international best practices, we
need two other things to bolster financial stability.

First, we need to shake the complacency that results from several years of continuous financial sector expansion and require our financial institutions to put robust risk management at the core of their operations (our institutions need to be reminded that what happened to Jamaica in the late 1990’s could happen here).

Second, we need to re-enforce our regulatory efforts by doing three things; getting a better balance within macro-economic policy; establishing a set of reliable early-warning indicators and developing, in conjunction with the government, a crisis management plan (to deal with systemic institutions).

DOWNLOAD FULL SPEECH BELOW