Bank Restructuring in Eastern Caribbean Currency Union
Challenge
Following the 2008 global financial crisis, the Eastern Caribbean Currency Union (ECCU) faced high public debt and stretched finances, leading the Eastern Caribbean Central Bank (ECCB) to place three domestic banks into conservatorship by the end of 2013. The ECCU needed to strengthen its financial system through improved regulation and supervision.
Approach
With support from the Government of Canada, the ECCB worked with the IMF on a program aimed squarely at revising banking legislative frameworks and increasing the central bank’s ability to monitor progress made by the banks in conservatorship. The ECCB worked closely with a long-term, resident expert from the IMF, and subsequently shifted to collaborating on periodic missions from the Fund, which continued providing technical advice and collaborating with staff for the program’s maintenance.
Impact
Since the start of the program, the ECCU has seen region-wide implementation of modern banking legislation. This has led to greater on- and off-site supervision — including asset quality reviews and dynamic modeling for all domestic banks — resulting in revisions to the region’s medium-term fiscal framework. This modeling has also been used to assess the viability of these banks and the potential to restructure them.
By April 2016, all three conservatorships had been resolved. The program led to a new Banking Act and the Eastern Caribbean Asset Management Company Act, both approved in all ECCU jurisdictions.