ECCB 2014-2015 Annual Report and Statement of Accounts

EASTERN CARIBBEAN CENTRAL BANK

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

effect fundamental changes in the banking and financial systems after the countries gained independence.

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.

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

ECCB ANNUAL REPORT 2014/2015

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