Financial Liberalization and its Impact on Financial Stability

Financial Liberalization and its Impact on Financial Stability in Guyana by Debra Roberts

Outline of Presentation § § Introduction. Pre- ERP Conditions. Post- ERP Conditions. Evaluation of the current regulatory framework. § Conclusion and Recommendations.

Introduction § Financial Repression and Financial Liberalization Repression § Expansion of financial markets § Washington Consensus policies promoted by the International Financial Institutions § A condition to access technical and financial assistance from the IMF

Pre- ERP Conditions § Government controlled approximately 80 percent of the banking system’s capital. § Inadequate supervision § Poor management of financial institutions § Poor asset quality

Post – ERP Conditions § Restrictions were eliminated § No state-owned banks § Financial Institutions Act 1995 – empowered BOG to regulate and supervise financial institutions § BOG Act 1998 § The presence of foreign banks

Current Regulatory framework § Prudential Component –embraces the CAMELS approach / in line with BASLE recommendations. § Regulatory Structure – organized along institutional lines § Other Features – risk- based supervision, little macro- prudential analysis

Weaknesses § Insufficient macro- prudential analysis § Inter- agency coordination is absent § Regulatory arbitrage § Depositors are not protected. § Globe Trust – deposit taking institutions § CLICO - liquidated

Conclusions § Financial Liberalization has strengthened financial stability § The financial crisis highlighted new challenges. § Need for additional reform to strengthen supervision

Recommendations § Expand the coverage of regulated financial institutions. § Foreign exchange exposures should be monitored § Need for more macro- prudential analysis § An integrated regulatory structure should be adopted § Deposit Insurance / Consumer protection

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