ECCB
ANNUAL REPORT 2014/2015
2
EASTERN CARIBBEAN CENTRAL BANK
effect fundamental changes in the banking and financial
systems after the countries gained independence.
Commercial banks first came to the region to service
the plantation economies which were the predominant
form of economic organisation. They facilitated the
export of the staple crop and the importation of the
consumption, intermediate and capital goods needed
for the production of the staple. The banks were
originally from the United Kingdom, which was
the metropolitan center for trade under the colonial
system, and were followed by banks from Canada
where a trade had developed for the export of molasses
in exchange for imports of wheat and cod fish. It was
not until the advent of the Canadian banks that a retail
banking model came into existence, which suggests
that the local population and even the local merchants,
who did not operate large distribution firms, were not
serviced by the banking system.
In the post-independence era, Caribbean governments
attempted to develop the banking and financial system
by establishing monetary authorities in the form
of central banks, development banks, which were
then in vogue to supply long term capital to new
businesses, and stock exchanges to supply equity.
The fundamental problem however was that the
commercial banks controlled most of the loanable
funds raised domestically and their business model
was the Anglo Saxon model geared towards short
term funding for working capital secured by collateral
and inventories. The approach to this problem in
many countries, including the Caribbean, was largely
dependent on the ideology of the political regimes
at the time. The more left wing regimes engaged
in nationalisation, with others favouring localisation
through domestic shareholding, and the establishment
of stand-alone local banks.
In the currency union, the establishment of local
banks played an important role in providing access to
three important sectors of the economy, namely, the
governments, the small and medium sized industries
and the emerging middle class who needed mortgage
financing. That had the important consequence of
providing competition to the foreign banks which
forced them to also make financing available to these
groups. The proliferation of banks however led to
serious over-banking in the sector, as each country in
the currency union was a separate jurisdiction. The
result was that the numbers ballooned to a total of 40
banks to serve a population of just over 600,000. This
fragmentation and fractionalisation is also present
in the insurance and credit union sectors where the
numbers total 161 insurance entities and 50 credit
unions.
In the currency union, the establishment of local banks played an important role in
providing access to three important sectors of the economy, namely, the governments,
the small and medium sized industries and the emerging middle class who needed
mortgage financing
