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WILD COOT: Who is at fault?

HARRY RUSSELL, [email protected]

WILD COOT: Who is at fault?

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IF YOU KEEP ALLOWING the commercial banks to disrespect the citizens of Barbados, then the citizens will find an alternative to the commercial banks. I have been agitating for the Central Bank to make it its business to rein in banks.

Credit card interest and charges are usurious. Now that commercial banks see no opposition from the Central Bank, they institute punitive, spurious charges. Once upon a time, a three per cent spread between interest rates was a normal profit. Now there is no limit to the spread because banks pay “tuppence” for savings and fixed deposit accounts. Well, it has created a greater problem. This problem is not only fomented by the Canadian banks, but also by the Trinidadian banks whose charges are no less ubiquitous than the other banks. Barbados is reaping the whirlwind.

People will find ways of bypassing the banks. So foreign money comes in for lending; is disseminated in loans, and as repayments are made more loans are created, the momentum picks up. The Central Bank, according to May 10 DAILY NATION, is worried. It should have seen it coming. It is the Central Bank that has created the problem on account of its handling of the commercial banks. So the strategy of starving the country of spending money, thus protecting the foreign exchange, has not worked and indeed is backfiring on the Central Bank. The boast of the minister about the interest in savings bonds is an empty boast.

If you change the law that says “When you take deposits from the public and lend out those deposits, then you are a bank” to simply “When you lend money to the public you become subject to inspection from the Central Bank”, you open Pandora’s box. My father borrowed many times from a firm of lawyers. If you were to borrow $15 000 to be repaid over two years at two per cent per month, there are at least two ways of calculating interest to arrive at a total repayment. In one case you pay $7 200 in interest in another $4 033. In either case, it shows the desperation to which people are driven by the “enlightened” move by our Central Bank.

Now that every manjack can set up a lending institution, supervision has spiralled out of control, just like in the insurance industry a couple of years ago. This has implications for established commercial banks and the reputation of the country. What are you going to do now? Foreign money coming into the country can cause problems unless the source is reputable. If the country from which the foreign money is coming cannot certify the direct or indirect source of this money, then the entire Barbados system is contaminated. Worrying is the current practice of offering citizenship to persons from Asian countries, Russia and China. Not all want-to-be citizens bring investment for trade or settlement. These persons are granted Caribbean passports as all citizens of CARICOM. Barbados has not yet embarked on this practice (as far as I know) but the matter is of concern to bigger countries with which we have a monetary arrangement. That is why a visa requirement has been imposed on some Caribbean countries. 

“The Central Bank is worried that individuals and businesses could use underground methods to move money across jurisdictions unless a solution is found to the correspondent banking problems facing the region.” The article as reported goes on: “If a solution is not found, countries and individuals who no longer have access to services of international banks will have to conduct their financial and foreign exchange transactions outside of the international system of licensed financial institutions.”

Isn’t that what is happening right now? Street exchange is rampant and the hotel industry has overseas obligations as the Wild Coot has pointed out in a recent article. This gives fire to the withdrawal of correspondent banking services. Indigenous banks such as Republic Bank, First Citizens Bank and Royal Bank of Trinidad and Tobago in Barbados; and those in the Eastern Caribbean, Jamaica, Belize, Suriname, Bahamas and Guyana, may well be searching around for new correspondent banking relations.

Even if these banks were to approach the Canadian banks for help, the accusation of contamination will still apply. The proposal to set up a clearing house for US transactions in New York has little traction, as that proposal cannot solve the dilemma. The problem is the fear of weapons, money and drug money entering the region’s Caribbean banking system. Chaos in Babylon!

The Wild Coot will continue this article anon.

Harry Russell is a banker. Email [email protected]