Financial Interconnectedness and Financial Sector Reforms in the Caribbean
IMF Working Papers, July 31, 2013
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Bibliographic details
- Authors: Sumiko Ogawa, Joonkyu Park, Diva Singh, Nita Thacker
- Published: July 31, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484307830.001
Summary
- Financial sector linkages have increased continuously in the Caribbean with cross border capital flows and financial conglomerates dominating the financial system.
- Greater interconnectedness can heighten systemic risks and likelihood of contagion, but can have positive impacts provided regional authorities take steps to prevent systemic risk.
- Critical reform measures include bolstering and harmonizing prudential regulations in line with international best practices; strengthening and enhancing financial sector supervision to include cross border linkages through consolidated supervision; increasing cooperation across supervisors in the region; and establishing deposit insurance and crisis resolution frameworks to maintain financial sector stability and minimize repercussions of negative shocks.
Key findings and thematic observations
- Cross border capital flows and financial conglomerates dominate the Caribbean financial system.
- Increased interconnectedness raises systemic risk and the likelihood of contagion.
- Positive effects of interconnectedness are conditional on effective regional policy and supervisory responses.
Policy recommendations and reform priorities
- Bolster and harmonize prudential regulations in line with international best practices.
- Strengthen and enhance financial sector supervision to include cross border linkages through consolidated supervision.
- Increase cooperation across supervisors in the region.
- Establish deposit insurance frameworks.
- Establish crisis resolution frameworks and systematic bank resolution frameworks.
Subject areas and keywords (as listed)
- Subjects: Banking, Commercial banks, Credit bureaus, Financial contagion, Financial institutions, Financial markets, Financial regulation and supervision, Financial sector policy and analysis, Insurance companies
- Keywords: bank sector, banking sector assets, BIS data, Caribbean, Commercial banks, Credit bureaus, credit risk, ECCU country, ECCU's banking sector, Financial contagion, financial interconnectedness, financial sector in the Caribbean region, financial system, Global, Insurance companies, Latin American bank, liquid bank, loan portfolio, market share, parent bank support, problem bank, regulatory and supervision system, resolution framework, systematic bank resolution framework, WP