2015年-世界发展银行全球_Dealing_with_Distressed_Financial_Cooperatives___A_Caribbean_Experience_44页_1mb

Summary of "Dealing with Distressed Financial Cooperatives: A Caribbean Experience"

Core Content

This working paper discusses the restructuring of a distressed systemic financial cooperative, the Building and Loan Association (BLA), in Saint Vincent and the Grenadines. It outlines the challenges faced by the Financial Services Authority (FSA) in managing the crisis, the steps taken to stabilize and restructure the BLA, and the lessons learned for financial supervisors and policymakers.

Main Points

1.1 Financial Cooperatives in the English-Speaking Caribbean

• Financial cooperatives have a long history in the region, with two main types: credit unions and building societies (BLAs).
• Credit unions were introduced in the early 1940s by missionaries, while BLAs were established in the late 19th and early 20th centuries.
• These institutions cater to low and middle-income households, promoting financial inclusion and thrift.
• Despite their role, financial cooperatives face challenges such as limited product offerings, weak governance, and difficulties in mobilizing capital.
• The BLA, being the largest non-bank deposit taker in the country, had significant liabilities and was heavily impacted by the global financial crisis.

1.2 The BLA Crisis

• The BLA was established in 1941 under the Building Societies Act and was insolvent by 2013.
• It had no reliable financial statements, weak corporate governance, and an unsustainable business model.
• The institution had a high delinquency rate on loans, with 40% of the loan portfolio classified as non-performing loans (NPLs).
• The lack of deposit insurance and a lender of last resort (LOLR) made the situation more volatile.
• A press article in January 2013 triggered a deposit run, leading the FSA to take control on February 1, 2013.

1.3 The New Supervisor

• The FSA was newly established in 2012 and faced significant challenges in taking over a failing institution.
• It had no prior experience in resolving failed financial institutions and lacked a crisis plan.
• The legal framework for the BLA did not include resolution mechanisms, but the FSA Act granted it broad powers for intervention and reorganization.

Restructuring Strategy

2.1 A Three-Pronged Approach

The FSA developed a three-stage plan to stabilize the BLA:

1. Immediate Corrective Actions (February 2013): Focused on governance, liquidity management, IT systems, and communication.

   • Governance was restructured with the Deputy Executive Director appointed as Acting CEO.
   • Liquidity management measures were implemented, including temporary rules on share redemption and deposit withdrawals.
   • IT systems were evaluated and updated to ensure data integrity.
   • A communication strategy was developed to maintain public confidence.

2. Short-Term Actions: Continued liquidity management and initiated loan recovery processes.

   • NPLs were segmented and real estate collateral was posted for sale.
   • Legal and procedural discrepancies were recorded to identify potential liabilities.
   • A special Liquidity Task Force was established to monitor liquidity issues.

3. Medium-Term Actions: Aimed at transferring control back to the members and implementing long-term reforms.

   • The FSA worked to restore public confidence through transparent communication and engagement with members.
   • The BLA was eventually returned to member control following a successful restructuring and recapitalization plan.

2.2 Member Engagement and Public Confidence

• The FSA involved members in the process to restore confidence.
• Members were informed of changes and provided with support for withdrawals.
• The use of the diaspora to facilitate property sales helped in loan recovery.
• The FSA maintained a strong presence to address member concerns and prevent further panic.

2.3 Alternative Restructuring Options

• The FSA considered three options: issuing directives to management, taking over management, or liquidating the institution.
• Liquidation was deemed too damaging to public confidence and financial stability.
• Taking over management was chosen to stabilize the institution and ensure a viable recovery.

Key Lessons for Supervisors

3.1 Regulatory and Supervisory Frameworks

• Strong, effective regulatory frameworks are essential for financial cooperatives.
• The FSA’s establishment marked a shift towards more robust supervision.

3.2 Temporary Intervention for Long-Term Viability

• Temporary interventions should focus on long-term viability rather than just short-term fixes.
• The FSA’s approach emphasized liquidity, solvency, and sustainable business practices.

3.3 Liquidity Management and Bail-In

• Liquidity management was critical in preventing a systemic crisis.
• Bail-in mechanisms were used to recapitalize the institution without public funding.
• The FSA implemented strict liquidity rules and monitored their effectiveness.

Conclusion

• The BLA was successfully restructured and revived in less than nine months.
• The intervention demonstrated the importance of proactive supervision, member engagement, and liquidity management.
• No public funds were used, and the process relied heavily on restoring public confidence and implementing a comprehensive turnaround plan.

Key Information

• BLA's Role: Largest non-bank deposit taker in Saint Vincent and the Grenadines.
• Financial Status: Insolvent with negative equity, high delinquency on loans, and poor liquidity.
• Intervention Date: February 1, 2013.
• Outcome: The BLA was stabilized and returned to member control.
• No Public Funding: The FSA relied on member contributions and asset recovery for recapitalization.
• Lessons Learned: Effective regulation, member engagement, and liquidity management are crucial in dealing with distressed financial cooperatives.

Figures and Tables

• Table 1: Provides data on credit unions in the English-Speaking Caribbean.
• Figures 1-5: Illustrate the BLA's balance sheet, deposit and share breakdown, and performance indicators.

Abbreviations

• AGM: Annual General Meeting
• BLA: Building and Loan Association
• FSA: Financial Services Authority
• NPLs: Non Performing Loans
• LOLR: Lender of Last Resort
• MoU: Memorandum of Understanding
• ECD: Eastern Caribbean Dollar

Box Highlights

• Box 1: Details liquidity management measures, including temporary withdrawal limits.
• Box 2: Outlines successes and challenges in loan collection, including the use of media and legal constraints.
• Box 3: Summarizes key messages from the FSA, emphasizing transparency and member involvement.
• Box 4: Highlights the attributes of effective resolution regimes, including liquidity management and stakeholder engagement.