1. Long-tailed keyword: cost of rescuing
2. Long-tailed keyword: rescuing expenses.
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Nearly three decades ago, Jamaica faced a severe economic crisis as financial institutions collapsed, leaving the Government to intervene at a significant cost to taxpayers. The rescue efforts amounted to 42 per cent of the country’s GDP, equivalent to approximately $1.4 trillion in today’s terms. Determined to avoid burdening taxpayers with such costs in the future, the Jamaican Government is set to introduce a special resolution regime (SRR) to guide the rescue of failed or failing financial institutions.
Finance Minister Nigel Clarke announced in the House of Representatives that the upcoming legislation will address the issue decisively, ensuring that taxpayers are not called upon to cover the expenses of failed financial institutions. The proposed SRR is expected to be comprehensive, with input from financial institutions following a consultation paper circulated in October last year.
Resolution Fund and Costs
The SRR will establish a resolution fund to rescue failed institutions without relying on taxpayer funds. The aim is to prevent market discipline from being weakened by implicit government support for risky financial behaviour. The Bank of Jamaica (BOJ) will be empowered to conduct orderly resolutions to stabilize confidence in the financial sector and maintain critical financial functions.
The consultation paper suggested a resolution fund target of 1.5 per cent of GDP, approximately $40.1 billion, to recapitalize smaller entities. Larger institutions may require additional funding to ensure system-wide viability. This fund surpasses the existing deposit insurance fund managed by the Jamaica Deposit Insurance Corporation.
Resolution Powers and Actions
The BOJ will initiate resolutions based on assessments of institutions’ viability, intervening when failure is imminent. The central bank will have broad powers, including management replacement, asset recovery, and restructuring actions. Shareholder rights may be overridden to facilitate mergers, acquisitions, or liquidations.
Resolution actions could involve transferring assets and liabilities, imposing moratoriums, and liquidating failing institutions. Non-financial entities within financial groups may be subject to resolutions, with options for temporary operations or bail-ins. The legislation aims to address gaps in the regulatory framework exposed by recent financial fraud cases like Stocks and Securities Limited.
Minister Clarke highlighted the need to balance property rights with financial stability, emphasizing the importance of protecting the public interest in a stable financial system. The new legislation seeks to clarify the hierarchy of rights when institutions pose a risk to the economy.
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1. cost of emergency rescue
2. Jamaica Observer rescue expenses.
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