## 1. The Collapse of the CL Financial Group

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---

### Overview and context
- CL Financial Group collapsed in January 2009; it was Trinidad and Tobago–based and the largest insurance company in the region.
- At end-2007, the group’s assets stood at US$16 billion, equivalent to about 30 percent of the Caribbean region’s GDP.
- The group operated in at least 28 countries and its failure produced spillovers across the Caribbean, affecting all 15 CARICOM states except Jamaica and Haiti, with exposures as high as 17 percent of GDP (in the ECCU).

### Causes of the collapse
- Rapid expansion from a holding company for Colonial Life Insurance Company (CLICO) in 1993 into banking, insurance, energy, beverages, and real estate.
- Growth fueled primarily by deposit-like annuity products sold by insurance subsidiaries—CLICO and British American Insurance Company (BAICO).
- Aggressive market strategy: offering substantially higher returns than banks while evading stricter banking regulation and supervision.
- Funds raised from annuity products were channeled into real estate and other investments that were adversely affected by the global financial crisis.
- Weak corporate governance, inadequate risk management, high leverage, and complex related party transactions.

### Immediate impacts and resolution progress
- Spillovers produced significant losses to policyholders and creditors across the region and stresses on insurance markets and related financial institutions.
- Resolution process characterized as slow and piecemeal; only Belize, Cayman Islands, and Suriname had made notable progress at the time of reporting.
- Specific resolution actions noted:
  - Sale of CLICO Mortgage Finance Company (Barbados).
  - Sale of part of BAICO (the ECCU).
  - In early 2012, policyholders with investments less than TT$75,000 received a full reimbursement.
  - Government of Trinidad and Tobago launched CLICO Investment Fund (CIF) to compensate CLICO investors and policy holders, and planned to establish a new insurance company to take over CLICO and BAICO insurance policies.
  - The new insurance company will take over the traditional life insurance portfolio of CLICO, while ‘bad’ assets will remain with CLICO until they can be properly resolved.
  - The ECCU announced it had sourced financing, including from the Government of Trinidad and Tobago, to resolve annuity holders.

### Broader implications for the Caribbean financial system
- Critical gaps highlighted:
  - Inadequate supervision of financial conglomerates and insufficient consolidated risk-based supervision.
  - Limited capacity of existing supervisory frameworks to detect excessive risk taking and complex related party transactions in a timely manner.
  - Insufficient information on interconnectedness between financial institutions and systemic risks arising from such interconnectedness.
- Authorities intervened to minimize negative impacts on policyholders and creditors; such interventions can stabilize systems but may increase moral hazard.
- Potential fiscal consequences: authorities’ bailouts might entail significant fiscal resources, adding pressure to already high public debts in many Caribbean countries and weighing on economic activity, alongside sluggish tourism sectors and elevated commodity prices.

### Lessons and policy implications drawn from the episode
- Need for ex ante measures to mitigate systemic risk, including:
  - Consolidated risk-based supervision of financial conglomerates that transcends national boundaries.
  - Enhanced supervision of both banks and non-banks, with harmonized supervisory standards.
  - Development of a coordinated approach to supervision and closer cooperation and information sharing among supervisors.
  - Consideration of regional deposit insurance and crisis resolution frameworks to prevent regulatory arbitrage and strengthen financial stability.
- The collapse reinforced that increased financial interconnectedness can both diffuse shocks through risk diversification and amplify contagion when financial frictions and weak supervision are present.

---

### B. Stylized Analysis on Interconnectedness in the Caribbean Region

### Overview and motivation
- The CL Financial collapse illustrates negative spillovers from interconnectedness and underscores importance of preventing future episodes.
- Regional analysis constrained by data limitations and the region’s limited systemic importance globally.
- The paper models interconnectedness in several ways and provides recommendations on financial sector reforms to minimize systemic risks.
- Drivers of increasing financial linkages: risk diversification, search for higher yield, desire to increase market share, and increased integration in the real sector (including effects from formal arrangements like the CARICOM Single Market and Economy (CSME)).

### Market structure and concentration in banking
- Financial conglomerates and institutions with complex ownership structures tend to control a large market share simultaneously in several Caribbean countries.
- The four largest banking groups control about 75 percent of total banking sector assets in the region.
- Market shares (percent of total assets of the banking sector):
  - Scotia Bank: Antigua and Barbuda 23 percent; The Bahamas 28 percent; Grenada 23 percent; Jamaica 32 percent.
  - Republic Bank (Trinidad and Tobago based): controls nearly half the market share in its home country and has a large presence in Guyana.
  - CIBC and RBC hold significant market shares in several Caribbean countries.
- Table of Major Financial Conglomerates With Cross Border Operations in the Caribbean (As of end-2010) — Assets, No. of Caribbean Countries, Percent of Total Caribbean Banking Sector Assets:
  - RBC Financial — 116862, 20, 22
  - Scotia Bank — 101452, 12, 20
  - First Caribbean International Bank — 9766, 18, 19
  - Republic Bank — 9315, 6, 14
  - SAGICOR Financial Group — 4867, 22, NA
  - First Citizens Bank — 4015, 4, 8
  - Guardian Holdings — 3281, 4, NA
  - JMMB — 1318, 3, NA
- High concentration partly reflects small country sizes and repeated presence of same financial companies across the region.
- Presence of Canadian banks yields supervisory benefits but creates core-node risks where shocks in source countries may reverberate.

### Indigenous banking and public sector linkages (ECCU)
- Indigenous banking interlinks through cross-shareholdings, the interbank market, and public sector exposures.
- Examples of ownership interlinks: Eastern Caribbean Financial Holding Company (parent of Bank of Saint Lucia) is also majority shareholder of Bank of St. Vincent and the Grenadines; these and other banks comprise largest shareholders of Eastern Caribbean Amalgamated Bank.
- Public sector exposure and deposits (end-2011, ECCU indigenous vs foreign banks):
  - Public sector exposure of indigenous banks reached over 20 percent of their total assets on aggregate.
  - Public sector exposure for foreign banks in the sub-region was about 5 percent of their total assets.
  - Public sector accounts for about 30 percent of total deposits for indigenous banks.
  - Public sector accounts for about 5 percent of total deposits for foreign banks.
- Indigenous sector in the ECCU undergoing restructuring and consolidation; bulk of impact likely contained within ECCU.

### Non-bank sector — insurance and asset concentration
- After CL Financial collapse, Sagicor has the largest insurance network with operations in 22 countries.
- Sagicor’s major shareholders: National Insurance Board of Barbados and Republic Bank Limited; remaining shareholders are individuals and companies mainly in the Caribbean region.
- Sagicor’s investment and lending portfolios are concentrated in the Caribbean, exposing it to sovereign credit risk.
- Sagicor's Key Investment Portfolio (Total: US$ 3,599 million) — Amount (US$ million), Share in Investment Portfolio, Credit Rating (S&P):
  - Government of Jamaica — 1,123, 31%, B-
  - Government of Trinidad and Tobago — 144, 4%, A
  - Government of Barbados — 183, 5%, BB+
  - Bank of Nova Scotia — 130, 4%, AA-
  - Government of USA — 102, 3%, AA+
- Sagicor's Lending Portfolio - Geographical Distribution (Total: US$ 556 million):
  - Barbados — 193, 35%, BB+
  - Jamaica — 129, 23%, B-
  - Trinidad and Tobago — 94, 17%, A
  - Other Caribbean — 75, 13%, ...
  - USA — 65, 12%, AA+
- Guardian Life: 17 percent of total assets are in Jamaican dollars.
- Sagicor Life assets: US$1.5bn; Sagicor Life Jamaica assets: US$1.9bn; Sagicor Financial Group — Assets in the region: US$3.8bn (2011).
- Guardian Holdings — Total assets: US$3.3bn (2011).

### Quantitative analysis of interconnectedness — methods and data
- Network analysis used to assess interconnectedness and implications for financial stability.
- "In-degree interconnectedness" measure: recipient’s share of “active” links from sources to the total number of potential links; a link is “active” if the stock of the recipient’s cross border liabilities is above 0.2 percent of the recipient’s GDP. Normalizing by the recipient’s GDP emphasizes the importance of the link from the recipient’s perspective.
- Herfindahl-Hirschman Index (HHI): measures degree of concentration from the perspective of the source country. Calculated by squaring the share of each creditor in a country’s foreign liabilities and summing; higher numbers indicate greater concentration.
- Data: BIS international consolidated banking statistics (2001–2011) used to calculate indices; exposure by country of immediate borrower was used to assess existence of links and level of concentration.
- Limitations: immediate borrower basis data cover all countries except Antigua and Barbuda and St. Kitts and Nevis; results affected by lack of consistent availability of data. Canada is excluded due to lack of sufficient time-series data. Interbank transactions or liquidity links were not analyzable due to insufficient data.

### Quantitative findings (BIS and CPIS results)
- Overall trend: general increase in interconnectedness, with some setbacks since the global financial crisis.
- In-degree index results (2001–2011):
  - The in-degree index is higher and has been increasing more markedly in The Bahamas and Barbados, reflecting significant offshore sectors and inflows from Europe.
  - Belize saw increases in 2003 and 2007 but a downward trend in recent years.
  - Jamaica saw a rise in the early 2000s but a declining trend since 2004.
  - Interconnectedness remained relatively stable over the last decade in the rest of the region.
- HHI (concentration) results:
  - Concentration index is on a declining path or remained relatively low in larger Caribbean economies.
  - HHI is generally higher in less interconnected countries due to a small number of links playing significant roles (example: Guyana, where claims from Mexico increased to over 90 percent of overall claims).
  - Changes in size of claims from one source can have significant impact (example spikes: Barbados 2006–07 due to increase in claims of UK banks; Belize 2003 due to increase in claims from Switzerland).
- CPIS analysis (2001–2010):
  - Only The Bahamas and Barbados among the countries included report CPIS data.
  - CPIS results confirm BIS findings: interconnectedness generally increased in the last decade in The Bahamas and Barbados.
  - In The Bahamas, most funds originate in Brazil, Italy, Japan, Switzerland, and the U.S.
  - In Barbados, Ireland, Luxemburg, the U.K., and the U.S. are main fund providers.
  - Despite relatively high interconnectedness, contagion risks to the onshore banking system may be limited due to regulation separating onshore banking from offshore sectors.

### Implications for systemic risk
- Mitigating factors supporting banking sector resilience:
  - The largest four banks in the region are well capitalized and their assets remain liquid.
  - The top three banks are part of an international network of Canadian banks whose share of foreign activities is largely made up of local currency claims and they are not dependent on wholesale funding markets.
  - Banking sector expansion into overseas markets has focused on traditional retail and commercial banking.
- Risks highlighted by CL Financial collapse:
  - Interconnectedness of financial groups across countries poses significant contagion risks.
  - Significant concentration within the regional banking sector represents potential contagion risks associated with distress in a large banking group.
  - Operation of subsidiaries and branches across several jurisdictions, some lacking strong consolidated supervision frameworks, could lead to insufficient understanding of systemic risks due to differences in prudential regulations and inadequate information sharing.
- Exposure magnitudes and vulnerability:
  - BIS data show foreign banks’ claims are more than 100 percent of GDP in a few countries, implying greater impact on credit and output in a large and disorderly deleveraging process.
- Offshore centers (Bahamas and Barbados):
  - Offshore sectors are insulated from onshore banking through regulatory “Chinese walls”, limiting contagion risk.
  - Offshore sector faces increasing international scrutiny to reduce illegal tax evasion and strengthen AML/CFT measures.
  - Ongoing global regulatory reforms and uncertainty may prompt major financial groups to revise strategies away from international financial centers.

---

### Box 2. Interconnectedness through Stock Markets

### Key findings on cross-listing and market integration
- Cross-listing is a dimension of financial integration in the Caribbean; some large companies, especially financial firms, have multiple listings across several stock exchanges.
- Barbados, Jamaica, and Trinidad and Tobago show relatively higher percentage of non-local firms in their stock exchanges.
- Correlation analysis for historical market prices shows strong co-movements for companies listed in:
  - Jamaica and Trinidad and Tobago.
  - Barbados and Trinidad and Tobago.
- Caveat: some stocks are not traded regularly and therefore the number of observations can be very low.

### Cross-Listed Firms by exchange (Cross-Listed Companies as of July 2012)
- ECCU ECSE 13 11 21 5.4
- The Bahamas BISX 20 19 15.0
- Barbados BSE 22 16 62 7.3
- Guyana GASCI 14 13 17.1
- Jamaica JSE 39 31 82 0.5
- Suriname SSX 11 10 0.0
- Trinidad and Tobago TTSE 34 23 11 32.4
- Total 153 124 29 19.0
- Source: Individual Stock Exchanges.

### Selected cross-listed companies and correlation of share price movements (examples)
- FirstCaribbean International Bank Ltd — correlations: BISX 0.4457* (25 obs); JSE 0.5897* (382 obs); TTSE 0.9171* (84 obs); ECSE .0
- Trinidad Cement Limited — correlations: BSE 0.9630* (15 obs); JSE 0.8998* (72 obs); ECSE 0.1503 (11 obs)
- Jamaica Money Market Brokers Ltd. — correlations: BSE 0.3527 (5 obs); TTSE 0.3776* (424 obs)
- Neal & Massy Holdings Ltd. — correlation with BSE 0.9669* (41 obs)
- Guardian Holdings Ltd. — correlation with JSE 0.7641* (92 obs)
- Sagicor Financial Corporation — correlations: TTSE 0.9720* (642 obs); LSE 0.8129* (614 obs)
- National Commercial Bank of Jamaica Ltd. — correlation with TTSE 0.8763* (764 obs)
- Scotia Investments Jamaica Ltd. — correlation with TTSE 0.6918* (345 obs)
- GraceKennedy Ltd. — correlations: BSE 0.6619* (43 obs); TTSE 0.8947* (621 obs)
- Capital and Credit Financial Group Ltd. — correlation with TTSE 0.8562* (145 obs)

### Interpretation and caveats
- Correlation results indicate strong price co-movements among several pairs of cross-listed stocks, especially involving Trinidad and Tobago, Jamaica, and Barbados.
- Robustness limited by low observation counts for some stocks due to irregular trading.

---

### Strengthening of regulation, supervision, and crisis frameworks (2011 onward)

### Strengthening of banking regulation and supervision
- The new law strengthened considerably the regulatory regime and supervisory powers of the central bank.
- Central bank preparing improved prudential regulations for risk management, corporate governance, consolidated supervision, and audit and licensing procedures.
- Trinidad and Tobago: A revision to the Financial Institutions Act is being considered to:
  - broaden the regulatory perimeter,
  - enhance compliance and enforcement,
  - implement Basel III prudential criteria for the definition of regulatory capital and risk-based capital requirements.
- Amendments to the Insurance Act in February 2009 provided the CBTT with enhanced powers, including issuance of compliance directions.
- A new Insurance Bill implementing risk-based regulation and Solvency II criteria is ready for Parliamentary debate.

### Early warning systems and information
- Recommendation: develop early warning systems based on key information (e.g., cross-border exposures, soundness indicators) to identify risks earlier and take corrective measures quickly.
- Credit bureaus could be used for sharing information and analyzing related credit risks across jurisdictions.
- Greater transparency in banks’ disclosure and more frequent reporting of FSIs would facilitate more effective supervision.

### Consolidated supervision, home-host cooperation, and information sharing
- Provide explicit legal basis for effective consolidated supervision of corporate governance, risk management and internal controls at group level.
- Proactive home-host cooperation is important given systemic importance of Canadian banks in the region.
- Consolidated supervision requires greater information sharing and coordination between central banks and regulatory agencies.
- A framework for consolidated supervision commissioned by the Caribbean Group of Banking Supervisors (CGSB) exists; implementation will likely require legislative changes.
- Recommend MOUs and regular exchange of information; require financial groups to report financials on both a consolidated and solo basis.

### Strengthened, harmonized legislation to prevent regulatory arbitrage
- Significant differences in prudential requirements across the Caribbean; most countries follow Basel I principles but definitions vary.
- Specific recommended regulatory strengthening:
  - (i) Improve criteria for loan classification and establish higher loss provisions for each classification category.
  - (ii) Require banks to conduct more stringent and frequent reviews of loan portfolios.
  - (iii) Standardize guidelines for valuation of collateral.
  - (iv) Use internationally accepted standards for defining connected borrowing and lending to related parties.
- Ensure capital requirements reflect market, credit, liquidity and operational risks.
- Address variation in classification standards for NPLs, loss provisioning requirements, and liquid-asset ratios.
- Many countries lack well-defined guidelines on connected lending and have different limits on lending to single borrowers.

### Stronger corrective action and enforcement
- Recommendation: adopt a prompt corrective action (PCA) framework linking pre-defined criteria to trigger automatic corrective actions and enforce timely remedies.
- Strengthen supervisory independence and enforcement powers to avoid delays.

### Crisis management frameworks and deposit insurance
- CGSB drafted an outline of a crisis resolution strategy for regional banks awaiting formal adoption.
- Recommendation: all countries should have a crisis management framework; systemically important institutions should submit mandatory stress tests.
- Crisis management frameworks should:
  - define the lead agency,
  - specify modalities for cooperation among regulatory and supervisory agencies and other stakeholders,
  - consider regional crisis management frameworks.
- Recommend adopting the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions for cross-border regimes, including bi-national agreements between home and host authorities.
- Deposit insurance:
  - Absence of deposit insurance complicated interventions in two indigenous banks in Antigua and Barbuda.
  - Explicit deposit insurance schemes protect unsophisticated depositors and help avoid bank runs; could reduce government burden in bank failure episodes.
  - Some non-ECCU countries have deposit insurance though coverage is modest.
  - Long-run: consider a harmonized regional deposit insurance scheme after country-specific analysis.
  - Short-run: all countries should strive for national deposit insurance schemes, but strengthen regulation and supervision first to avoid moral hazard.

### Non-banking sector risks and supervisory needs
- CL Financial failure demonstrated interconnectedness via large NBFIs and need to strengthen supervision of these institutions.
- Inadequate information was collected regarding contracts with affiliates or outstanding arrangements.
- Efforts to collect information on credit unions need extension to cover the broader non-banking sector and increase frequency.
- Without prompt and effective resolution frameworks, investor redemption pressure can lead to collapse of subsidiaries.
- Recommendations for non-bank conglomerates:
  - Adopt systemic approach toward large and complex non-bank financial conglomerates.
  - Regular exchange of information between supervisory authorities and MOUs for cross-border resolution frameworks.
  - Legislative provisions to ensure group structure does not hinder supervision and resolution.
  - Strengthen supervision and risk-monitoring of credit unions.
  - For OFCs, strengthen supervisory staff capacity, and establish closer working relationships with home supervisors of foreign banks.

### Conclusions
- Increased financial sector interconnectedness can be positive if regional authorities prevent associated systemic risks.
- Subsidiaries and branches across jurisdictions lacking strong consolidated supervision can lead to regulatory arbitrage or underestimation of risks.
- Critical reforms include:
  - bolstering and harmonizing prudential regulations in line with international best practices,
  - enhancing financial sector supervision to include cross-border linkages through consolidated supervision,
  - increasing cooperation and information sharing across supervisors,
  - establishing deposit insurance and crisis resolution frameworks.
- These measures are critical to maintain financial sector stability and minimize repercussions from negative shocks.

---

### Selected quantitative indicators and appendices

### Financial Soundness Indicators (2012 sample, In percent)
- Regulatory capital to RWA (2012 sample):
  - Bahamas 26.7
  - Barbados 19.6
  - Belize 22.3
  - Guyana 19.3
  - Jamaica 14.1
  - Suriname 12.3
  - Trinidad & Tobago 24.6
- Nonperforming loans to total loans (2012 sample):
  - Bahamas 13.9
  - Barbados 12.7
  - Belize 17.2
  - Guyana 8.4
  - Jamaica 6.8
  - Suriname 8.3
  - Trinidad & Tobago 5.4
- Return on assets (2012 sample):
  - Bahamas 1.7
  - Barbados 1.0
  - Belize -9.0
  - Guyana 2.4
  - Jamaica 2.4
  - Trinidad & Tobago 2.6
- Liquid asset ratio (2012 sample):
  - Bahamas 20.3
  - Barbados 13.2
  - Belize 29.6
  - Guyana 31.5
  - Jamaica ...
  - Suriname 27.5
  - Trinidad & Tobago 25.2
- Provisions to nonperforming loans (2012 sample):
  - Bahamas 39.1
  - Barbados 36.5
  - Belize 40.8
  - Guyana 51.8
  - Jamaica 92.8
  - Trinidad & Tobago 42.2
- Note: 2012 Numbers: The Bahamas: ROA (March), Liquid asset ratio (June), Barbados (September), Suriname (September), Trinidad & Tobago: Provisioning to NPL (September).

### Selected cross-border banking claims (Appendix 2: BIS reporting banks’ claims, in millions of U.S. dollars)
- Consolidated foreign claims by nationality of reporting banks (2011–2012 Q1–Q3 samples):
  - European banks: Q1 32,048; Q2 35,789; Q3 32,339; Q4 34,052; Q1 35,010; Q2 33,599; Q3 36,012
  - Swiss banks: Q1 12,467; Q2 15,468; Q3 12,765; Q4 12,056; Q1 12,888; Q2 11,898; Q3 13,654
  - German banks: Q1 7,599; Q2 8,596; Q3 8,237; Q4 8,511; Q1 8,463; Q2 8,771; Q3 9,294
  - North American Banks: Q1 14,287; Q2 13,258; Q3 13,658; Q4 11,464; Q1 18,565; Q2 11,947; Q3 13,126
  - US banks subset: Q1 14,287; Q2 13,258; Q3 13,658; Q4 11,464; Q1 13,620; Q2 11,947; Q3 13,126
- Country-level examples (Swiss banks claims to selected Caribbean jurisdictions):
  - Bahamas: Q1 11,087; Q2 13,691; Q3 11,093; Q4 10,357; Q1 11,070; Q2 10,081; Q3 11,868
  - Trinidad & Tobago: Q1 239; Q2 193; Q3 188; Q4 177; Q1 173; Q2 166; Q3 118

### Key prudential standards across selected countries (Appendix 3, selected items)
- ECCU:
  - CAR NPLs 8%
  - Provisioning to NPLs <5%
  - Liquid Assets to Deposits 20-25%
  - Large Exposure Limits: Less than 25% of unimpaired capital and reserves
  - Banks to identify, record and monitor related party loans, and report at times specified by ECCB
- Jamaica:
  - CAR 10%
  - NPLs <10%
  - Provisioning: 100% (once NPL is older than 2 years)
  - Liquid assets: No* (Liquid assets are on average not less than 15 percent of prescribed liabilities.)
  - Central Bank monitors related party exposure once exposure has surpassed 5% of capital base.
- Barbados:
  - CAR 8%
  - Provisioning tiers: 0%-substandard residential mortgage loans up to 6 months past due; 10%-substandard (other); 50%-doubtful; 100%-loss
  - Liquid Assets to Deposits 15%
  - No comprehensive definition of “related parties”
- Trinidad and Tobago:
  - Progressive additional provisions required over time; cumulative large exposure limit (800 %)
  - Banks only report connected party exposures higher than 10 percent of the capital of the bank
- Bahamas:
  - CAR 17%
  - Provisioning tiers: 0%-Satisfactory, Special mention; 15-25%-Substandard; 50-75%-Doubtful; 100%-Loss
  - Liquid Assets to Deposits 20%
- Belize:
  - CAR 9%
  - NPLs <5%
  - Provisioning tiers: 20%-substandard; 50%-doubtful; 100%-loss (fully unsecured); 70%-loss (fully secured)
  - Liquid Assets to Deposits 23%
  - Large exposure limits: Lenient** (Allowing an aggregate limit of 600 percent of capital for loans to individual borrowers exceeding 25 percent of capital. Exemptions to this limit may be granted by the CBB.)
  - Exposures to related parties: Unsecured exposures to a person or to a borrower group shall not exceed 15 percent of the fully paid up unimpaired capital and reserves. Aggregate exposure to a person or to a borrower group shall not exceed 4 times the fully paid-up unimpaired capital and reserves.
- Guyana:
  - CAR 8%
  - Provisioning: Generous*** (the large exposure limits vis-à-vis individual borrower groups should be aligned at 25 percent of capital base)

*Italic: Content derived from the IMF working paper _wp13175 PDF chapter/section._*

### 1. The Collapse of the CL Financial Group.............................................................................11

### 1. The Collapse of the CL Financial Group

### Overview and context
- CL Financial Group collapsed in January 2009; it was Trinidad and Tobago–based and the largest insurance company in the region.
- At end-2007, the group’s assets stood at US$16 billion, equivalent to about 30 percent of the Caribbean region’s GDP.
- The group operated in at least 28 countries and its failure produced spillovers across the Caribbean, affecting all 15 CARICOM states except Jamaica and Haiti, with exposures as high as 17 percent of GDP (in the ECCU).

### Causes of the collapse
- Rapid expansion from a holding company for Colonial Life Insurance Company (CLICO) in 1993 into banking, insurance, energy, beverages, and real estate.
- Growth fueled primarily by deposit-like annuity products sold by insurance subsidiaries—CLICO and British American Insurance Company (BAICO).
- Aggressive market strategy: offering substantially higher returns than banks while evading stricter banking regulation and supervision.
- Funds raised from annuity products were channeled into real estate and other investments that were adversely affected by the global financial crisis.
- Weak corporate governance, inadequate risk management, high leverage, and complex related party transactions.

### Immediate impacts and resolution progress
- Spillover effects included significant losses to policyholders and creditors across the region and stresses on insurance markets and related financial institutions.
- Resolution process characterized as slow and piecemeal; only Belize, Cayman Islands, and Suriname had made notable progress at the time of reporting.
- Specific resolution actions noted:
  - Sale of CLICO Mortgage Finance Company (Barbados).
  - Sale of part of BAICO (the ECCU).
  - In early 2012, policyholders with investments less than TT$75,000 received a full reimbursement.
  - Government of Trinidad and Tobago launched CLICO Investment Fund (CIF) to compensate CLICO investors and policy holders, and planned to establish a new insurance company to take over CLICO and BAICO insurance policies.
  - The new insurance company will take over the traditional life insurance portfolio of CLICO, while ‘bad’ assets will remain with CLICO until they can be properly resolved.
  - The ECCU announced it had sourced financing, including from the Government of Trinidad and Tobago, to resolve annuity holders.

### Broader implications for the Caribbean financial system
- The episode highlighted critical gaps:
  - Inadequate supervision of financial conglomerates and insufficient consolidated risk-based supervision.
  - Limited capacity of existing supervisory frameworks to detect excessive risk taking and complex related party transactions in a timely manner.
  - Insufficient information on interconnectedness between financial institutions and systemic risks arising from such interconnectedness.
- Authorities intervened to minimize negative impacts on policyholders and creditors; such interventions can stabilize systems but may increase moral hazard.
- Potential fiscal consequences: authorities’ bailouts might entail significant fiscal resources, adding pressure to already high public debts in many Caribbean countries and weighing on economic activity, alongside sluggish tourism sectors and elevated commodity prices.

### Lessons and policy implications drawn from the episode
- Need for ex ante measures to mitigate systemic risk, including:
  - Consolidated risk-based supervision of financial conglomerates that transcends national boundaries.
  - Enhanced supervision of both banks and non-banks, with harmonized supervisory standards.
  - Development of a coordinated approach to supervision and closer cooperation and information sharing among supervisors.
  - Consideration of regional deposit insurance and crisis resolution frameworks to prevent regulatory arbitrage and strengthen financial stability.
- The collapse reinforced that increased financial interconnectedness can both diffuse shocks through risk diversification and amplify contagion when financial frictions and weak supervision are present.

*Source: IMF staff chapter — "1. The Collapse of the CL Financial Group" from the provided PDF content.*

### 1. See also Box 1 in IMF (2011c) and the Selected Issues Paper of Trinidad and Tobago (2011d) for more details.

### B.   Stylized Analysis on Interconnectedness in the Caribbean Region

### Overview and motivation
- The collapse of the CL Financial Group illustrates the negative spillover impact of interconnectedness in the Caribbean and underscores the importance of preventing this in the future.
- An in-depth regional analysis has been largely absent due to difficulty obtaining sufficient data or because the region is not deemed systemically important from a global perspective.
- This paper models interconnectedness in several ways and provides recommendations on financial sector reforms to minimize systemic risks, especially those posed by interconnectedness.
- Drivers of increasing financial linkages: risk diversification, search for higher yield, desire to increase market share, and increased integration in the real sector (including effects from formal arrangements like the CARICOM Single Market and Economy (CSME)).

### Market structure and concentration in banking
- Financial conglomerates and institutions with complex ownership structures tend to control a large market share simultaneously in several Caribbean countries.
- The four largest banking groups control about 75 percent of total banking sector assets in the region.
- Market shares (percent of total assets of the banking sector):
  - Scotia Bank: Antigua and Barbuda 23 percent; The Bahamas 28 percent; Grenada 23 percent; Jamaica 32 percent.
  - Republic Bank (Trinidad and Tobago based): controls nearly half the market share in its home country and has a large presence in Guyana.
  - CIBC and RBC (other Canadian banks) hold significant market shares in several Caribbean countries.
- Table of Major Financial Conglomerates With Cross Border Operations in the Caribbean (As of end-2010) — Assets, No. of Caribbean Countries, Percent of Total Caribbean Banking Sector Assets:
  - RBC Financial — 116862, 20, 22
  - Scotia Bank — 101452, 12, 20
  - First Caribbean International Bank — 9766, 18, 19
  - Republic Bank — 9315, 6, 14
  - SAGICOR Financial Group — 4867, 22, NA
  - First Citizens Bank — 4015, 4, 8
  - Guardian Holdings — 3281, 4, NA
  - JMMB — 1318, 3, NA
- High level of concentration is partly due to the small size of individual countries and the region, and the repeated presence of the same financial companies across the region.
- Presence of Canadian banks has enabled benefits from Canada’s supervisory and regulatory framework, but high interconnectedness with foreign banks implies shocks in a source country (a core node) may reverberate through the network.

### Indigenous banking and public sector linkages (ECCU)
- Indigenous banking sector interlinks through cross-shareholdings, the interbank market, and public sector exposures.
- Examples of cross-shareholdings and ownership:
  - Eastern Caribbean Financial Holding Company (parent of Bank of Saint Lucia) is also a majority shareholder of Bank of St. Vincent and the Grenadines.
  - Those two banks, along with the National Bank of Dominica, Antigua Commercial Bank and St. Kitts-Nevis-Anguilla National Bank, comprise the largest shareholders of Eastern Caribbean Amalgamated Bank (formerly Bank of Antigua).
  - Many governments and national insurance schemes are among shareholders of indigenous banks.
- Public sector exposure and deposits (end-2011, ECCU indigenous vs foreign banks):
  - Public sector exposure of indigenous banks reached over 20 percent of their total assets on aggregate.
  - Public sector exposure for foreign banks in the sub-region was about 5 percent of their total assets.
  - Public sector accounts for about 30 percent of total deposits for indigenous banks.
  - Public sector accounts for about 5 percent of total deposits for foreign banks.
- The indigenous banking sector in the ECCU is undertaking extensive restructuring and consolidation aimed at strengthening stability; the bulk of impact likely contained within the ECCU region.

### Non-bank sector — insurance and asset concentration
- After the collapse of CL Financial Group, Sagicor now has the largest insurance network with operations in 22 countries.
- Sagicor’s major shareholders: National Insurance Board of Barbados and Republic Bank Limited; remaining shareholders are individuals and companies mainly in the Caribbean region.
- Sagicor’s investment and lending portfolios are concentrated in the Caribbean region, exposing it to sovereign credit risk.
- Sagicor's Key Investment Portfolio (Total: US$ 3,599 million) — Amount (US$ million), Share in Investment Portfolio, Credit Rating (S&P):
  - Government of Jamaica — 1,123, 31%, B-
  - Government of Trinidad and Tobago — 144, 4%, A
  - Government of Barbados — 183, 5%, BB+
  - Bank of Nova Scotia — 130, 4%, AA-
  - Government of USA — 102, 3%, AA+
- Sagicor's Lending Portfolio - Geographical Distribution (Total: US$ 556 million) — Country / Region, Amount (US$ million), Share in Lending Portfolio, Credit Rating (S&P):
  - Barbados — 193, 35%, BB+
  - Jamaica — 129, 23%, B-
  - Trinidad and Tobago — 94, 17%, A
  - Other Caribbean — 75, 13%, ...
  - USA — 65, 12%, AA+
- Guardian Life (headquartered in Trinidad and Tobago): 17 percent of total assets are in Jamaican dollars.
- Sagicor Life assets: US$1.5bn; Sagicor Life Jamaica assets: US$1.9bn; Sagicor Financial Group — Assets in the region: US$3.8bn (2011).
- Guardian Holdings — Total assets: US$3.3bn (2011).

### Quantitative analysis of interconnectedness — methods and data
- Network analysis concepts used to assess interconnectedness and implications for financial stability.
- "In-degree interconnectedness" measure: recipient’s share of “active” links from sources to the total number of potential links; a link is “active” if the stock of the recipient’s cross border liabilities is above 0.2 percent of the recipient’s GDP. Normalizing by the recipient’s GDP emphasizes the importance of the link from the recipient’s perspective.
- Herfindahl-Hirschman Index (HHI): measures degree of concentration from the perspective of the source country. Calculated by squaring the share of each creditor in a country’s foreign liabilities and summing; higher numbers indicate greater concentration.
- Data: BIS international consolidated banking statistics (2001–2011) used to calculate indices; data cover international financial claims of banks in 25 reporting countries on a consolidated basis (claims of domestically-owned banks, excluding intra-group positions), broken down by country of exposure. Exposure by country of immediate borrower was used to assess existence of links and level of concentration.
- Limitations: immediate borrower basis data cover all countries except Antigua and Barbuda and St. Kitts and Nevis; results affected by lack of consistent availability of data throughout the period analyzed. Canada is excluded due to lack of sufficient time-series data. It would also be useful to analyze interbank transactions or liquidity links, but data are insufficient.

### Quantitative findings (BIS and CPIS results)
- Overall trend: general increase in interconnectedness, with some setbacks since the global financial crisis.
- In-degree index results (2001–2011):
  - The in-degree index is higher and has been increasing more markedly in The Bahamas and Barbados, likely reflecting significant offshore financial sectors and inflows from Europe.
  - Belize saw increases in 2003 and 2007 but a downward trend in recent years.
  - Jamaica saw a rise in the early 2000s but a declining trend since 2004.
  - Interconnectedness remained relatively stable over the last decade in the rest of the region.
- HHI (concentration) results:
  - Concentration index is on a declining path or remained relatively low in larger Caribbean economies, reflecting greater diversity in financial linkages.
  - HHI is generally higher in countries less interconnected due to a small number of links playing significant roles (example: Guyana, where claims from Mexico increased to over 90 percent of overall claims in recent years).
  - Changes in size of claims from one source can have significant impact (example spikes: Barbados 2006–07 due to increase in claims of UK banks; Belize 2003 due to increase in claims from Switzerland).
- CPIS analysis (2001–2010):
  - Only The Bahamas and Barbados among the countries included report CPIS data.
  - CPIS results confirm BIS findings: interconnectedness generally increased in the last decade in The Bahamas and Barbados.
  - Both countries’ high network connectivity reflects their status as offshore financial centers and strong linkages with foreign financial institutions.
  - In The Bahamas, most funds originate in Brazil, Italy, Japan, Switzerland, and the U.S.
  - In Barbados, Ireland, Luxemburg, the U.K., and the U.S. are main fund providers.
  - Despite relatively high interconnectedness, contagion risks to the onshore banking system may be limited due to strong regulation separating onshore banking activities from offshore sectors.

### Implications for systemic risk
- Mitigating factors supporting banking sector resilience:
  - The largest four banks in the region are well capitalized and their assets remain liquid.
  - The top three banks are part of an international network of Canadian banks whose share of foreign activities is largely made up of local currency claims and they are not dependent on wholesale funding markets.
  - Banking sector expansion into overseas markets has focused on traditional retail and commercial banking.
- Risks highlighted by CL Financial collapse:
  - Interconnectedness of financial groups across countries poses significant risks, as shocks can be easily transmitted through the network.
  - Significant concentration within the regional banking sector represents potential contagion risks associated with distress within one of the large banking groups.
  - Operation of subsidiaries and branches across several jurisdictions, some lacking strong consolidated supervision frameworks, could lead to insufficient understanding of systemic risks due to differences in prudential regulations and inadequate information sharing.
- Exposure magnitudes and vulnerability:
  - BIS data show foreign banks’ claims are more than 100 percent of GDP in a few countries, with a higher portion of international claims (direct cross-border lending plus credit by bank subsidiaries in foreign currency).
  - In a large and disorderly deleveraging process, the impact on credit and output would be greater in those few countries with high foreign bank claims relative to GDP.
- Offshore centers (Bahamas and Barbados):
  - Offshore financial sectors are insulated from onshore banking systems through regulation and legal prohibitions on transactions between onshore and offshore sectors (“Chinese walls”), limiting contagion risk.
  - Offshore sector faces increasing international scrutiny to reduce illegal tax evasion, address regulatory loopholes, and strengthen anti–money laundering and counter–terrorist financing efforts.
  - Ongoing global regulatory reforms and heightened regulatory uncertainty pose challenges and may prompt major financial groups to revise strategies away from international financial centers.

*Source: Excerpt from _wp13175 (IMF staff paper), section B–D: Stylized Analysis on Interconnectedness in the Caribbean Region; figures and tables as supplied in the source content.*

### Box 2. Interconnectedness through Stock Markets

### Box 2. Interconnectedness through Stock Markets

### Key findings on cross-listing and market integration
- Companies’ cross-listing is a dimension of financial integration in the Caribbean region.
- Some large companies, especially financial firms, have multiple listings across several stock exchanges.
- Barbados, Jamaica, and Trinidad and Tobago show relatively higher percentage of non-local firms in their stock exchanges.
- The correlation analysis for historical market prices shows that co-movements are strong in the case of companies listed in:
  - Jamaica and Trinidad and Tobago.
  - Barbados and Trinidad and Tobago.

- * significant at the 5 percent level.
- Note: There is a caveat in this analysis because some stocks are not traded regularly and therefore the number of observations is very low.

### Cross-Listed Firms by exchange (Cross-Listed Companies as of July 2012)
- ECCUECSE1311215.4
- The BahamasBISX201915.0
- BarbadosBSE2216627.3
- GuyanaGASCI141317.1
- JamaicaJSE3931820.5
- SurinameSSX111100.0
- Trinidad and Tobago  TTSE34231132.4
- Total1531242919.0
- Source: Individual Stock Exchanges.

### Selected cross-listed companies and correlation of share price movements
- Firstcaribbean International Bank Ltd  
  - Home Exchange: Barbados  
  - Other Exchanges where Listed: BISX; JSE; TTSE; ECSE  
  - Correlation / No. of observations: BISX0.4457*25; JSE0.5897*382; TTSE0.9171*84; ECSE.0
- Trinidad Cement Limited  
  - Home Exchange: Trinidad  
  - Other Exchanges where Listed: BSE; JSE; ECSE; GASCI  
  - Correlation / No. of observations: BSE0.9630*15; JSE0.8998*72; ECSE0.150311; GASCI...na
- Jamaica Money Market Brokers Ltd.  
  - Home Exchange: Jamaica  
  - Other Exchanges where Listed: BSE; TTSE  
  - Correlation / No. of observations: BSE0.35275; TTSE0.3776*424
- Neal & Massy Holdings Ltd.  
  - Home Exchange: Trinidad  
  - Other Exchanges where Listed: BSE  
  - Correlation / No. of observations: BSE0.9669*41
- Guardian Holdings Ltd.  
  - Home Exchange: Trinidad  
  - Other Exchanges where Listed: JSE  
  - Correlation / No. of observations: JSE0.7641*92
- Sagicor Financial Corporation  
  - Home Exchange: Barbados  
  - Other Exchanges where Listed: TTSE; LSE  
  - Correlation / No. of observations: TTSE0.9720*642; LSE0.8129*614
- Fortress Caribbean Property Fund  
  - Home Exchange: Barbados  
  - Other Exchanges where Listed: TTSE  
  - Correlation / No. of observations: TTSE...na
- National Commercial Bank of Jamaica Ltd.  
  - Home Exchange: Jamaica  
  - Other Exchanges where Listed: TTSE  
  - Correlation / No. of observations: TTSE0.8763*764
- Scotia Investments Jamaica Ltd.  
  - Home Exchange: Jamaica  
  - Other Exchanges where Listed: TTSE  
  - Correlation / No. of observations: TTSE0.6918*345
- GraceKennedy Ltd.  
  - Home Exchange: Jamaica  
  - Other Exchanges where Listed: BSE; TTSE  
  - Correlation / No. of observations: BSE0.6619*43; TTSE0.8947*621
- Capital and Credit Financial Group Ltd.  
  - Home Exchange: Jamaica  
  - Other Exchanges where Listed: TTSE  
  - Correlation / No. of observations: TTSE0.8562*145

- Source: Individual Stock Exchanges.

### Interpretation and caveats
- The correlation results indicate strong price co-movements among several pairs of cross-listed stocks, especially involving Trinidad and Tobago, Jamaica, and Barbados listings.
- The analysis is limited by low numbers of observations for some stocks due to irregular trading; this affects the robustness of some correlation estimates.

*Source: _wp13175 - Box 2. Interconnectedness through Stock Markets*

### 2011. The new law strengthened considerably the regulatory regime and supervisory powers of the

### _wp13175 - 2011. The new law strengthened considerably the regulatory regime and supervisory powers of the

### Strengthening of banking regulation and supervision
- The new law strengthened considerably the regulatory regime and supervisory powers of the central bank.
- The central bank is preparing to issue improved prudential regulations for financial institutions in the areas of risk management, corporate governance, consolidated supervision, and audit and licensing procedures.
- Trinidad and Tobago: A revision to the Financial Institutions Act is being considered to:
  - broaden the regulatory perimeter,
  - enhance compliance and enforcement,
  - implement Basel III prudential criteria for the definition of regulatory capital and risk-based capital requirements.
- Amendments to the Insurance Act in February 2009 provided the CBTT with enhanced powers to address problem institutions, particularly through the issuance of compliance directions when an insurer is engaged in unsafe and unsound practices.
- A new Insurance Bill implementing risk-based regulation and supervision including modern criteria for solvency measurement (Solvency II) is ready for Parliamentary debate.

### Early warning systems and information
- Recommendation: Develop early warning systems based on key information (e.g., financial institutions’ cross-border exposures, soundness indicators of those exposures) to identify risks at an earlier stage and take corrective measures quickly.
- Credit bureaus: Could be used for sharing information and analyzing related credit risks across jurisdictions.
- Greater transparency in banks’ disclosure and more frequent reporting of financial soundness indicators (FSIs) would facilitate more effective supervision.

### Consolidated supervision, home-host cooperation, and information sharing
- Given the dominance of large regional banks and financial conglomerates, provide a more explicit legal basis for effective consolidated supervision to allow comprehensive supervision of corporate governance, risk management and internal controls at the group level.
- Proactive home-host cooperation is important given the systemic importance of Canadian banks in the Caribbean region.
- Consolidated supervision requires greater information sharing and coordination between central banks and various regulatory agencies.
- A recently finalized framework for consolidated supervision in the region, commissioned by the Caribbean Group of Banking Supervisors (CGSB), reflects progress, though implementation will likely require changes to current legislations.
- Memoranda of understanding (MOUs) and regular exchange of information between supervisory authorities are recommended, including requiring financial groups to report financials on both a consolidated and solo basis.

### Strengthened, harmonized legislation to prevent regulatory arbitrage
- Significant differences exist in prudential requirements across the Caribbean; most countries follow Basel I principles but definitions and measurements vary considerably.
- Specific gaps and recommended regulatory strengthening:
  - (i) Improve criteria for loan classification and establish higher loss provisions for each classification category.
  - (ii) Require banks to conduct more stringent and frequent reviews of their loan portfolios.
  - (iii) Standardize guidelines for valuation of collateral to harmonize treatment of assets and prevent underestimation of NPLs or overstatement of capital.
  - (iv) Use internationally accepted standards for defining connected borrowing and lending to related parties.
- Ensure capital requirements reflect market, credit, liquidity and operational risks.
- Address variation in classification standards for non-performing loans, loss provisioning requirements, and liquid-asset ratios.
- Many countries lack well-defined guidelines on connected lending and have different limits on lending to single borrowers.

### Stronger corrective action and enforcement
- Recommendation: Move to a prompt corrective action (PCA) framework that links pre-defined specific and objective criteria to trigger automatic issuance of corrective action and enforce timely remedies.
- Strengthen supervisory bodies’ independence and enforcement powers to avoid delays in corrective action.

### Crisis management frameworks and deposit insurance
- Caribbean Group of Banking Supervisors has drafted an outline of a crisis resolution strategy for regional banks awaiting formal adoption.
- Recommendation: All countries should have a crisis management framework to respond quickly and contain costs of a financial crisis; all systemically important financial institutions should be required to submit mandatory stress tests in addition to FSIs.
- Crisis management frameworks should:
  - define the lead agency in charge of crisis management,
  - specify modalities for cooperation among regulatory and supervisory agencies and other stakeholders,
  - consider regional crisis management frameworks given high connectivity.
- Recommend adopting the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions for cross-border resolution regimes, including bi-national agreements between home and host authorities.
- Deposit insurance:
  - The absence of deposit insurance and lack of a systematic bank resolution framework complicated recent interventions in two indigenous banks in Antigua and Barbuda.
  - Explicit deposit insurance schemes protect relatively unsophisticated depositors and help avoid bank runs; could reduce government burden in bank failure episodes.
  - Some non-ECCU countries have deposit insurance though coverage is modest.
  - Long-run: consider a harmonized regional deposit insurance scheme, after thorough consideration of country-specific conditions.
  - Short-run: all countries should strive to have national deposit insurance schemes, but a stronger regulatory and supervisory framework should precede deposit insurance to avoid moral hazard.

### Non-banking sector risks and supervisory needs
- The failure of CL Financial Group demonstrated regional interconnectedness through large NBFIs and the need to strengthen supervision of these institutions.
- Inadequate information was collected regarding contracts with affiliates or outstanding arrangements.
- Efforts to collect information on credit unions need extension to cover the broader non-banking sector and increase frequency to enable timely assessment of financial soundness.
- Without prompt and effective resolution frameworks, investor redemption pressure can lead to collapse of subsidiaries.
- Recommendations for non-bank financial conglomerates:
  - Adopt a systemic approach toward large and complex non-bank financial conglomerates.
  - Regular exchange of information between supervisory authorities and establishment of MOUs for cross-border resolution frameworks.
  - Legislative provisions to ensure group structure does not hinder supervision and resolution.
  - Strengthen supervision and risk-monitoring of credit unions where they play important domestic credit roles.
  - For OFCs, strengthen supervisory staff capacity, and establish closer working relationships with home supervisors of foreign banks.

### Conclusions
- Increased financial sector interconnectedness can be positive if regional authorities prevent associated systemic risks.
- Operation of subsidiaries and branches across jurisdictions lacking strong consolidated supervision frameworks could lead to regulatory arbitrage or underestimation of risks.
- Critical reforms include:
  - bolstering and harmonizing prudential regulations in line with international best practices,
  - enhancing financial sector supervision to include cross-border linkages through consolidated supervision,
  - increasing cooperation and information sharing across supervisors in the region,
  - establishing deposit insurance and crisis resolution frameworks.
- These measures are critical to maintain financial sector stability and minimize repercussions from negative shocks.

### Selected quantitative indicators (Appendix 1: Financial Soundness Indicators, In percent)
- Regulatory capital to RWA (2012 sample):
  - Bahamas 26.7
  - Barbados 19.6
  - Belize 22.3
  - Guyana 19.3
  - Jamaica 14.1
  - Suriname 12.3
  - Trinidad & Tobago 24.6
- Nonperforming loans to total loans (2012 sample):
  - Bahamas 13.9
  - Barbados 12.7
  - Belize 17.2
  - Guyana 8.4
  - Jamaica 6.8
  - Suriname 8.3
  - Trinidad & Tobago 5.4
- Return on assets (2012 sample):
  - Bahamas 1.7
  - Barbados 1.0
  - Belize -9.0
  - Guyana 2.4
  - Jamaica 2.4
  - Trinidad & Tobago 2.6
- Liquid asset ratio (2012 sample):
  - Bahamas 20.3
  - Barbados 13.2
  - Belize 29.6
  - Guyana 31.5
  - Jamaica ...
  - Suriname 27.5
  - Trinidad & Tobago 25.2
- Provisions to nonperforming loans (2012 sample):
  - Bahamas 39.1
  - Barbados 36.5
  - Belize 40.8
  - Guyana 51.8
  - Jamaica 92.8
  - Trinidad & Tobago 42.2
- Note: 2012 Numbers: The Bahamas: ROA (March), Liquid asset ratio (June), Barbados (September), Suriname (September), Trinidad & Tobago: Provisioning to NPL (September).

### Selected cross-border banking claims (Appendix 2: BIS reporting banks’ claims, in millions of U.S. dollars)
- Consolidated foreign claims by nationality of reporting banks (2011–2012 Q1–Q3 samples):
  - European banks: Q1 32,048; Q2 35,789; Q3 32,339; Q4 34,052; Q1 35,010; Q2 33,599; Q3 36,012
  - Swiss banks: Q1 12,467; Q2 15,468; Q3 12,765; Q4 12,056; Q1 12,888; Q2 11,898; Q3 13,654
  - German banks: Q1 7,599; Q2 8,596; Q3 8,237; Q4 8,511; Q1 8,463; Q2 8,771; Q3 9,294
  - North American Banks: Q1 14,287; Q2 13,258; Q3 13,658; Q4 11,464; Q1 18,565; Q2 11,947; Q3 13,126
  - US banks subset: Q1 14,287; Q2 13,258; Q3 13,658; Q4 11,464; Q1 13,620; Q2 11,947; Q3 13,126
- Country-level examples (Swiss banks claims to selected Caribbean jurisdictions):
  - Bahamas: Q1 11,087; Q2 13,691; Q3 11,093; Q4 10,357; Q1 11,070; Q2 10,081; Q3 11,868
  - Trinidad & Tobago: Q1 239; Q2 193; Q3 188; Q4 177; Q1 173; Q2 166; Q3 118

### Key prudential standards across selected countries (Appendix 3)
- ECCU:
  - CAR NPLs 8%
  - Provisioning to NPLs <5%
  - Liquid Assets to Deposits 20-25%
  - Large Exposure Limits: Less than 25% of unimpaired capital and reserves
  - Banks to identify, record and monitor related party loans, and report at times specified by ECCB
- Jamaica:
  - CAR 10%
  - NPLs <10%
  - Provisioning: 100% (once NPL is older than 2 years)
  - Liquid assets: No* (Liquid assets are on average not less than 15 percent of prescribed liabilities.)
  - No set prudential requirement for exposures to related parties; Central Bank monitors once exposure has surpassed 5% of capital base.
- Barbados:
  - CAR 8%
  - Provisioning tiers: 0%-substandard residential mortgage loans up to 6 months past due; 10%-substandard (other); 50%-doubtful; 100%-loss
  - Liquid Assets to Deposits 15%
  - Large exposure: Yes, but no legal provision
  - Exposures to related parties: Yes, but there is no comprehensive definition of “related parties”
- Trinidad and Tobago:
  - Progressive additional provisions required over time; cumulative large exposure limit (800 %)
  - Banks only report connected party exposures higher than 10 percent of the capital of the bank
- Bahamas:
  - CAR 17%
  - Provisioning tiers: 0%-Satisfactory, Special mention; 15-25%-Substandard; 50-75%-Doubtful; 100%-Loss
  - Liquid Assets to Deposits 20%
  - Large exposure limits: Yes
  - Exposures to related parties: Yes
- Belize:
  - CAR 9%
  - NPLs <5%
  - Provisioning tiers: 20%-substandard; 50%-doubtful; 100%-loss (fully unsecured); 70%-loss (fully secured)
  - Liquid Assets to Deposits 23%
  - Large exposure limits: Lenient** (Allowing an aggregate limit of 600 percent of capital for loans to individual borrowers exceeding 25 percent of capital. Exemptions to this limit may be granted by the CBB.)
  - Exposures to related parties: Unsecured exposures to a person or to a borrower group shall not exceed 15 percent of the fully paid up unimpaired capital and reserves. Aggregate exposure to a person or to a borrower group shall not exceed 4 times the fully paid-up unimpaired capital and reserves.
- Guyana:
  - CAR 8%
  - Provisioning: Generous*** (the large exposure limits vis-à-vis individual borrower groups should be aligned at 25 percent of capital base)
- Source: Country’s authorities and IMF staff's compilation

*Italic: Content derived from the IMF working paper _wp13175 PDF chapter/section._*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13175.pdf_