US BANKS CLOSURE HAVE NO NEGATIVE IMPACT ON LOCAL SECTOR, ACCORDING TO GOVERNOR, BUSINESS LEADER
By Marlon Madden
Barbadians are being reassured that there is no need to worry about the closure of two United States banks in recent weeks having any impact on the local banking system.
This assurance has come from Governor of the Central Bank of Barbados Dr Kevin Greenidge, who added that the rise in US interest rates was more about officials there trying to put a lid on inflation.
Earlier this month, the technology-focused Silicon Valley Bank was closed by US banking regulators. It was reported that the closure of the California-based financial institution by the Federal Deposit Incorporation came after depositors initiated withdrawals after encouragement from their venture capital backers.
Two days later, state regulators closed the New York-based Signature Bank.
Earlier this week, news also broke that Switzerland’s largest bank, UBS, had entered into a deal to buy the ailing Credit Suisse in an attempt to stem a financial market panic, especially in light of the failure of the two American banks.
Speaking at the Caribbean Economic Forum, which was held virtually on Wednesday night under the theme Managing Caribbean Economies in an Era of Many Crises, Dr Greenidge said he did not see any reason for residents to be concerned about the developments in the international banking sector.
“We would have done a thorough analysis of that, the impact from the recent collapse of those two banks on our banking system, both locally and regionally, and we have come to the conclusion that there is absolutely nothing to worry about,” he said in response to a question.
“Any effects are quite minimal. Our banks tend to be more linked with Canadian and regional banks and the effects we see from those two banks [in the US] are quite minimal. We continue to monitor, stress test the system, and we continue to be proactive in our approach and to ensure our strong financial system remains,” Greenidge assured.
He recalled that even at the height of the 2008 global financial crisis which gravely affected the US and its financial systems, the Caribbean banks remained “quite sound and were quite resilient even though much of the world came under a lot of pressure”.
“So I would want to alleviate any concerns whatsoever along those lines,” he said.
In relation to the increase in interest rate by a quarter of a percentage point, which US officials said was to curtail inflation and to ward off a threat of turmoil in the banking system, Greenidge said it showed there was some concern about the effect inflation was having on the macro economy.
Meanwhile, businessman and Chairman of the Caribbean Community (CARICOM) Private Sector Organisation Gervase Warner agreed there was no need for concern in light of the closure of two US-based banks because of the absence of a direct link to the region.
“We don’t have nearly the amount of linkages that you might expect banks to have in these developed economies,” said Warner.
However, his concern is that the development could contribute to an economic recession in the US, which Barbados and other regional economies depend on for trade and tourism.
“What does concern me and does worry me is the extent to which this banking crisis could precipitate an economic recession in markets from which we rely for our exports and tourism. That is the concern that I would always be looking at. If this persists and the banks start to get tight on credit,” he said.
Warner suggested that it would be wise to keep an eye on the increase in interest rate by the Federal Reserve, especially since it appeared the US was on the verge of going into a recession.
“They are trying to pay attention to this but there is a real chance that the US could go into a recession and certainly with what is happening in Europe, we could see something similar and that would affect oil and gas prices for our commodity-based economies.
“That is the thing that I think we should pay attention to and watch out for. But I completely agree with the governor that the risk of contagion and something happening within our banking system is nil,” said Warner.