The International Monetary Fund (IMF) has released a report focused on strengthening the banking system against failures, by ensuring the safeguards in place as required by The Central Bank of The Bahamas (CBOB) are operationalized and sufficient.
The IMF released a report called "Operationalizing the New Bank Resolution Framework and Amended Deposit Insurance Legislation", that scrutinizes the systems that exist to ensure the banking sector - which includes banks and credit unions - does not suffer any catastrophic failures for lack of an airtight framework to mitigate against foreseen and unforeseen risks.
"The CBOB should also develop and implement a strategy for building capacity for dealing with financial distress and failure situations, in liaison with the other financial safety net agencies, including a program of regular training, conducting crisis simulations, and testing safety net and resolution frameworks," the report's summary said.
The report suggests a strengthening of lines that exist between the frameworks developed by foreign-owned Bahamian banks and the frameworks of their parent companies.
The report notes: "Engagement with home supervisory authorities of foreign-owned banks should also be strengthened, with a view to seeking to ensure that parent-bank recovery plans adequately address recovery actions for subsidiaries in The Bahamas."
The report also suggests the CBOB prepare and test the contingency plans of weaker banks. It further suggests the legislation governing this aspect of the CBOB's oversight should be strengthened as well.
"Legislation on bank resolution should be reviewed and strengthened to (i) better align the legal framework with the Financial Stability Board's key attributes of effective resolution regimes, including clarifying resolution tools, establishing appropriate safeguards for their use, and specifying the preconditions for the contingency of public support; (ii) clarify the respective responsibilities of the CBOB and the Ministry of Finance, including on the provision of public funding/guarantees and the ownership of a bridge bank; and (iii) align the resolution framework for credit unions to that applicable to banks with appropriate modifications," the report's summary said.
"The operational framework requires the development of a resolution manual, including step-by-step implementation guidance for the resolution tools established in law and addressing institutional arrangements, and a resolution planning and resolvability assessment framework for domestic systemically important banks, with its implementation to commence via a pilot exercise."
The summary report explains that in order to ensure effective crisis management collaboration and coordination, the structure and governance of the Bahamas Financial Stability Council that is being established should be strengthened, as well as "the strengthening of the framework and operational capacity of the Deposit Insurance Corporation, including formalizing a backstop funding arrangement, building capacity for rapid payout, and establishing a public awareness program, which are key to optimizing that agency's critical safety net mandate".
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