Recent Economic Crisis and the Caribbean Banking Industry: Impacts and Measures

Introduction

The main causes of the present global financial crisis are of structural nature. Firstly, the practices forming the new financial architectures comprise of international systems of big investment banks and hedge funds that are inefficiently regulated or fall short of the required regulations. Secondly, the global financial recession occurred at a time when there were lot of disparities in the global financial structure in terms of imbalance amongst mobility of capital and workers. There was a big trade imbalance in the US because finance was given precedence in comparison to resources allocated for productive functions. Therefore, the bubble created in the sub-prime mortgage markets, the ensuing debt inflation, the constant pattern of excessive liquidity and the low rate of interest before the crisis resulted in global efforts to get high returns. Consequently, there was under pricing of risks by investors, which combined with the large scale indebtedness in the private sector, particularly in the US, to create adversities in the global financial sector. This research will focus on the impacts of the recent economic crisis and the measures that were taken to save the banking industry in the Caribbean region. Hence the central question is how the recent economic crisis affected the performance of the Caribbean banking industry?

It is known that banks play a crucial role in allocating capital and thus in economic growth and development. This is specifically characteristic of Latin American and Caribbean countries because the region’s economic landscape has been traditionally influenced by the banking sector. But the banking sector in the region has been in the grip of severe shortcomings in terms of the narrow focus and restricted depth of diversification and intermediation and of limited economies of scale. Additionally, the banking sector in the Caribbean has experienced frequent boom and bust patterns and repeated crisis situations that further contributed to increasing economic fluctuations. Some distinctive aspects such as high dependence on the dollar are characteristic of several countries in the region that have further enhanced fluctuation patterns.

Recent years have seen banking sectors in many Latin American and Caribbean nations undergoing quick structural transformation. A significant characteristic has been the attempts by nations in the region to enhance resilience and efficiency in their respective financial sectors by developing internal capital markets, privatizing government companies, adopting deregulation and encouraging entry of foreign banks. Nations have also been impacted by market driven processes aimed at consolidation as well as by over all financial growth and integration. These developments had considerable impact on market forces and influenced the allocation of credit by the banking sector. The main structures of the financial systems underwent considerable changes that were accompanied by revitalization of credit growth, particularly in sectors such as housing and consumption because banks had started recovering on the strength of revived economic activities.

However, it is important for the Caribbean region to implement further strategies of structural change; otherwise the entire region will continue to be in the grip of the financial crisis because of insufficient integration with the global economy. The region will also face enhanced complexities in holding out against other global competitors. It will also experience hurdles that may hinder growth, exacerbate the unemployment problem and create difficulty in dealing with issues of increasing inequality and poverty. Eventually there will be a marked deviation in terms of relationships and partnerships with developed countries. Although bank associations have already adopted a thinking pattern that is in keeping with a changing environment, the diagnostic elements used during the previous period will continue remaining relevant. The recent academic interpretations relative to global trading and trade and commerce is representative of a development in the examination and acceptance of empirical knowledge to develop conventional diagnostic systems. Therefore, the production of knowledge represents a broadening of conventional structures that have been adopted along with the present practices of globalization.

The main objective of this study is to ascertain the impact of the global financial crisis on the banking sector in the Caribbean region. The investigation will focus on the impacts of the recent economic crisis and the measures that were taken to save the banking industry in the Caribbean region. Hence the central question will be:

• How did the recent economic crisis affect the performance of the Caribbean banking industry?

In order to answer this question effectively, the following sub-questions will also be considered:

• What were the specific impacts on the banking industry?
• Were there internal factors that made the region vulnerable to the effects of the economic crisis?
• What measures were taken to address the effects of the crisis?
• Did the measures taken achieve their purpose?

Although the given changes have helped Caribbean countries in moving towards better allocation of financial resources they have also resulted in enhanced risks. As financial flows and interest rates become increasingly determined by the interaction of demand and supply, globally as well as domestically, the financial sector could have become more susceptible to market risks. Such issues are of particular significance for small economies because in having limited financial and economic diversification, they could have made the management of financial market volatilities more complex. Because of the introduction of new market structures, rules and products, there has been development and distribution of enhanced lending through economic sectors resulting in the creation of new market risks, liquidity and credit. A major issue in this regard is to consider whether financial institutions are better placed in coping with newly developed risks. It is evident that management of risks has improved in many of the sectors because of introducing new concepts of allocating credit and of establishing improved pricing and measurement of the given risks. Such improvement appears to have enhanced the strength of the banking sector in the region although weaknesses do exist in some sectors.

The changes in the banking sector, particularly in regard to enhanced market oriented processes related to intermediation had created strong implications for central banks in terms of the varied channel transmission and their capability to deal with sudden non-policy developments. It is important to note that the transformations have been accompanied with a change away from direct market-based functioning. There is strong evidence of reduction in monetary controls, which is evident from the weak transmission mechanisms that characterize most Caribbean economies. But to arrive at concrete conclusions in this regard, it is imperative for the research to establish more decisive conclusions. A major issue related to monitory policy pertains to the question whether central banks ought to adopt operating systems so that the financial sector is transformed or changes are introduced by making adjustments to the processes before hand. There appears to be no dispute on such issues because in many regions of the Caribbean meaningful adjustments have been made in operating processes that have been introduced by making structural changes.

The development of the banking sector in the Caribbean, particularly the entry of foreign banks, has impacted a number of potential aspects relative to the financial performance of economies. For example, bank managers in many developed countries have adopted policy measures in order to monitor banking systems efficiently. They have made sincere efforts in enhancing the standards of supervision, while in other countries lesser achievements have been made in regard to the regulatory environment. Some countries in the Caribbean have initiated measures to implement the Basel Core Principles for Effective Banking Supervision (BCPs), but stronger efforts are required in areas such as capital sufficiency, bank performance and bank supervision in addition to achieving better qualities of risk management techniques. Complying with such procedures would certainly reduce the prevailing weaknesses (Birchwood, 2006).

There are many issues for the Caribbean banking sector in regard to the current financial crisis that necessitate immediate remedial and correction measures. Major issues include the ways in which the cost of remedial measures for stabilizing the financial sector in the region be divided in terms of cases where there are chances of spillover contagion amongst different jurisdictions. Policy makers need to determine the methods by which policy and legislative complexities can be resolved, relative to exchange controls that have the potential to reduce and influence flow of funds into difficult sectors in situations when there is resolution of private sector crisis situations or bail out of public sector organizations. A major challenge for the Caribbean banking sector is to find ways in which variation in diverse supervisory and legislative systems will be managed by members in their respective jurisdictions that could influence their capability to effectively take part in the given regional plans.

Main features of banking systems in the Caribbean

Banks are known to play a very important role in allocating economic resources because they are the main players providing capital and thus stimulating economic growth. It is also established that gross domestic product and bank credit are strongly interrelated. It is true that the direction in which causality moves has been strongly debated in emerging economies in the context of their respective banking sectors. Research by Mihaljek (2008) has revealed that some economies with large banking sector have the tendency to experience high levels of economic growth as compared to nations that have small banking sectors. But many countries have common circumstances by way of inherent weaknesses in the banking sector. This similarity in the region is not because of the size of the gross domestic product or the economic size of the nation but because of the fact that many Caribbean countries have big off-shore financial centers. In contrast, many of the bigger economies such as Mexico and Argentina have small banking sectors as compared to what is required in keeping with their respective levels of economic growth.

Banks in the Caribbean region are unanimous about the fact that they did not take proactive actions in spite of having knowledge about the impending financial crisis. But they are in agreement that mistakes cannot be repeated and the required actions must be initiated in through regulatory measures so that regulations are enforced in order to improve the economic environment of the region that cannot afford to take risks that are being taken by developed countries. According to Hughlette (2010), the collapse of some financial institutions in the Caribbean is because of three major faults pertaining to regional regulations:

• Lack of cross-border collaborations
• Inadequate monitoring of non-bank financial institutions,
• Political interference in the regulatory process.

Many financial institutions in the region are operating from several locations, which mean that legal and regulatory procedures will have to be implemented on a regional basis otherwise regulatory measures will be left unimplemented effectively. Other than the inadequacies of cross-border regulations, there is strong level of inadequacy in regard to supervising non bank functions in the region (Inter-American Development Bank. 2009). Considerable efforts and resources have been employed in making regulatory bodies more effective so that they can effectively monitor non bank financial institutions such as insurance companies and mutual funds. However, it is widely felt that most of the new initiatives in this regard may not succeed entirely unless there is a strong political initiative in supporting them. At the same time, politicians need to keep away from regulatory bodies so that they can do their work impartially.

Depth of Focus on Financial Intermediation

It is true of many countries in the developed world that their financial sectors are strongly influenced by their respective banking sectors because of two reasons. Firstly, commercial banks have been commanding a better position in dealing with knowledge and risk diversification that are the main components of financial intermediation (Singh et al. 2005). Secondly, in many countries there is an extreme inadequacy of essential infrastructure that is required for developing securities market, which is strongly effective as an alternative source of finance. It is true that there are big banks in many Latin American and Caribbean countries but the banking sector in the region continues to be shallow. It is known that the ratio of credit to gross domestic product in the region is quite low as compared to the industrialized world and many other developing countries (Carstens and Jácome, 2008).

It is evident from the research carried out by (Hanan and Mansuri 2009), that some crucial lessons are learnt from the current financial crisis. There has been considerable shift of information amongst domestic and international regulators. A cautious and exhaustive analysis and review of the planned financial instruments and products should be undertaken before their launch. There is strong need to frame contingency plans to provide for domestic and regional eventualities relative to the financial crisis. The extent of economic dynamism that was prevailing during the period 2003 to 2007 has changed considerably. A marked pattern has been observed whereby external problems that were tackled effectively have again reappeared with possibilities of creating losses in the banking sector in the Caribbean.

The Financial Crisis and the Caribbean

There is no doubt that Caribbean countries are suffering from a financial crisis, which is a direct offshoot of the global financial crisis. Governments have to make strong decisions especially in countries that are severely impacted by the recession and they have to take control of the financial disruption that has spread across the global financial sector, obviously with devastating impact on the lives of millions of citizens. Brazil’s President Luis Ignacio Lula da Silva had spoken at the United Nations General Assembly in September 2009 and conveyed that there is extreme lack of economic opportunities which is proving to be detrimental to companies as well as workers. In doing so, he had vocalized the prevailing fear in the context of hedge funds, wealthy speculators and other manipulative entities that have been influencing energy and prices in order to enhance the fortunes of the companies that are determined to ruin the livelihood of people and the future of entire nations in the endless pursuit of getting personal gains. Such words are very relevant in the context of the Caribbean region because they relate to the extra ordinary circumstances characteristic of the market turmoil that has raised questions about what course capitalism, globalization and the laissez faire policies of the US will lead to. Although the American government eventually found itself trying to salvage its lost financial credibility, it had created new controls and adopted politically motivated processes to provide bailout packages for large corporations. The actions and the subsequent response of the world led to the end of a period in which unregulated markets had been influencing political thinking (Leora, Berger and Rima, 2009).

It is recognized that there is nothing wrong with profit motives, free markets and enterprises provided they are characterized with social awareness and ethical practices. Profits are known to give a boost to any nation’s economic growth, create employment and generate revenue from taxes that allow governments to fund several social and economic programs. But the events leading to the global recession clearly reveal what could happen if capital is processed in being an end in itself. Such situations further lead to investment losses in relation to society and productive enterprises. Sergent (2010) has rightly concluded in this context that it is unfortunate that the global crisis occurred because of the ways in which accumulations could strongly impact individuals, markets and governments, thus creating a global recession.

The Consequences of Global Financial Crisis on the Caribbean

The consequences of the global financial crisis have been quite severe for the Caribbean banking sector in the short as well as medium term. The resultant market turmoil and the speedy decline in economic growth will adversely impact tourism, which is an industry that has been driving growth in the Caribbean for several decades. There is anticipation of increasing prices of food and energy while the situation in exchange rates and higher air fares will make the middle class the worst sufferers. Industry will also find it extremely difficult to mobilize capital and to fund development efforts. Caribbean countries witnessed a boom in the construction sector during the last decade because the region was viewed by investors from several countries as offering unprecedented opportunities because of the consistently increasing real estate values and the large number of foreign visitors in the region. Although many of the projects that are under way will be completed, land developers will face extreme hardships in financing new projects because of tougher measures adopted by banks in terms of monitoring and checking viability of projects and credit profiles of promoters. The problems are now increasingly impacting the financing of other sectors because firms and banks in the region have started limiting their involvement to projects that are secure and give good return (Tsikeky, Moreira and Hamilton 2009).

Major drivers of economic activity in the Caribbean have also been adversely impacted because of the recession. It is evident from past experience that with rise in cost of living there is fall in employment in most developed countries in Europe and North America, which leads to fall in remittances by Caribbean citizens working in these regions. Such developments have created a continuous pattern of falling deposits in the banking sector, thus creating shortage of funds available with financial institutions. Governments in the Caribbean have been facing problems concerning debt financing and shortage in expenditures because of difficulties and higher rates in arranging bond issues and private funding. Although some nations such as Jamaica and Trinidad have been able to cope with the crisis by utilizing their reserves, small countries have no option but to choose amongst increased taxation or to seek assistance from regional associates such as Venezuela. Another difficult decision they may have to take is to cut expenditures emanating from reduced budgets. Because of such developments the Caribbean may lose its priority and strength in North America and Europe. It is evident in this context from the studies carried out by Fretes & Villela (2008) that with the financial contraction of developed economies, public expenditures will be reduced and taxes will be increased. Under the circumstances, the development assistance provided to Caribbean countries will be considered as satisfied and corrections may be made to the effect that future funding in the Caribbean is to be done only in the private sector.

However, such aspects are further accentuated by the economic and political landscape that has characterized the Caribbean banking sector during the last decade. If there is no relief from political pressures governments in developing countries including the US will have no choice but to make use of measures that indicate they are able to restore the previous economic position only by creating confidence in regulation and credit (David 2007), which will further allow the markets to function normally again. As a consequence, higher levels of government interventions and new regulation will have to be introduced again after which it will depend on the traditional sources and wealth funds to make use of the available options relative to sale of opportunities. They may start redrawing economic maps across the world whereby positions of actual power will also be changed dramatically. It is apparent that there is every possibility that the US will lose its economic supremacy and influence over the global economy. Such developments obviously point towards a greater need for Caribbean nations to take initiatives by participating in meaningful debates about finding new ways of measuring growth. There is a strong need for the Caribbean to consider whether it has intentions of continuing to be addicted to the vision attracting foreign inflow of funds. It is high time that the region consider a sustainable economic approach that is in keeping with the factual situation.

Impact on Caribbean Banking Industry

After the chaos resulting from the sub prime mortgage market and the extreme losses of value emanating from their so called innovative instruments, the international economic situation has sharply deteriorated. The future position and the global environment related to Latin American and Caribbean countries have also got worse to a great extent. The global economic conditions had started deteriorating in the middle of 2007 after the increase in unemployment in Europe and the United States. Increasing unemployment during his time had lead to the collapse of the sub prime mortgage market. Failures in these markets had quickly started impacting the financial performance of financial institutions that dealt with the so called innovative and revenue generating instruments pertaining to sub prime markets as the main assets. Simultaneously, the international economy was sharply impacted because the subsequent increase in energy and food prices made many central banks to enhance interest rates in attempts to reduce inflationary pressures. Some central banks opted to implement tight monetary policies during the prevailing boom period (Caruana 2010).

According to Flaherty (2010), although many of these issues, have a structural nature, rising incomes as well as population growth that are directly related with demand for food, led to increasing demand for energy and raw materials. There was large-scale subsidization of bio fuel in the US and in Europe, which added to the increasing pressure on prices of agricultural products. Other issues can be termed as being of provisional nature, such as the impact of instruments that are adopted in influencing the effect of hedge funds and increase in liquid assets that were largely adopted in impacting commodity markets. Although the recent decline in raw material prices of some items is indicative of the significance of provisional movements related to instability in those markets, the relative importance of similar and structural initiatives that resulted in price variation is not evidently understood or recognized (Hughlette, 2010).

Shah (2010) has concluded that many of the interrelated international financial shocks such as changing global price levels, declining economic growth and financial crisis, that have impacted the global economy have now become a combined force. The global financial crisis has already impacted the Caribbean region and there is increasing probability of economic uncertainty. After Lehman Brothers went bankrupt, there is increasing fear that a period will begin whereby global financial markets will be characterized with loss of trust amongst financial institutions. After the failure of the major financial entities, international short range money markets were strongly impacted because of which it became extremely expensive to engage in finance and banking functions. Financial institutions came to a virtual halt and it became extremely difficult for firms to find lenders. Following such developments, there have been devastating effects on stock markets and credit markets, while economies across the world have begun to stumble. This kind of financial impact has been spreading across the Caribbean economies and measures to contain the crisis have been focusing upon utilizing credit and attempting to prevent more damage to local economies (Robinson, 2005).

It is known that the G20 countries had decided to set up common agendas for reforming financial markets while holding that reformation of global regulatory systems could be carried out later. But it must be understood that a clear picture will have to emerge in the context of learning related to the present global crisis and the extent to which regulation should be made operational on a global basis. The 2008 G20 Summit established measures to ascertain a workable framework for global financial systems during the 21^st century. This framework was also suggestive of the fact that the G20 countries may take over from the G8 as the main steering body for the international economy.

It is evident from the prevailing circumstances that the crisis was not instigated by emerging economies although now the situation has changed because their combined demand is now exposed to global recession because as they have to depend on foreign investment and external demand. There was a marked pattern whereby financial institutions in many parts of the developed world took immediate initiatives by withdrawing large amounts of money from developing markets and thus created complications for financial institutions and market operations. Global means of credit, which is now recognized as the main lifeline of global transactions was quickly pulled out by way of huge amounts of money; funds were frozen that adversely impacted trade and commerce and reduced export earnings and countries. Regulators in emerging economies had to take conscious decisions by reducing interest rates and liquidity in their respective banking systems. It is noteworthy to consider the research findings of Sahay, Robinson & Cashin (2006), who hold that many economies still do have the capacity for added fiscal stimulus but poor economies do not have the required resources to take remedial measures by implementing counter cyclical policies. It is thus evident that foreign assistance will play a major role in improving the economic situation of economies in the Caribbean region (Inter-American Development Bank. 2009).

It is required of developed countries to initiate actions in committing enhanced financial assistance and support to the banking sector in the Caribbean region. The basic question that comes to mind in this regard is whether the present global financial crisis has occurred accidentally because of well designed international financial systems, or whether it was created from the present financial systems that led to the need for a new global financial order. It is evident that in both situations the deteriorating financial and economic decisions created stronger need to focus on the designs of counter cyclical policy measures during recessionary periods. It is required to have a diversified production structure by way of active export markets and production processes so that there is consistency in economic growth (Ize and Kiguel. 2008).

Internal Factors and Vulnerability to Economic Crisis

The internal factors that made the Caribbean region susceptible to the impacts of the global economic crisis and impacted the banking sector in the region were directly associated with five major channels that were operative in the region:

• External borrowing and financial contagion
• Foreign direct investment
• External demand
• Workers remittances
• Home country changing relative prices, mainly of commodities

As per research carried out by Goldstein and Turner (2008), the impact of the global crisis will percolate through both microeconomic and macro economic levels. Thinking from a social perception, the financial and economic crisis will increasingly impact social groups. The level of poverty will increase mainly because of high energy prices and deterioration in circumstances of the working class, while employment will be treated as an adjustment variable. The final outcomes will be dependent on the given economic, institutional and social circumstances that characterize every country in the Caribbean. Following the collapse of Lehman Brothers, there was a strong effect on financial markets in the Caribbean. There was a distinct pattern whereby the employment of portfolio investment instruments in the Caribbean region had eventually started declining in the last few months of 2008. Additionally, there was a rapid fall in the region’s stock markets whereby currencies started depreciating drastically mainly because of past speculative patterns. The Caribbean financial sector expected that there will be appreciation in local currencies. However, many firms were burdened with foreign currency debts that made their balance sheets to become negative because they were adversely affected because of devalued currencies (Ayadi and Behr 2009).

In variance with the circumstances during past financial crisis, the private sector in the Caribbean appeared to be the most strongly impacted because of the volatility in exchange rates in many of the region’s countries. Moreover, cost of international borrowings had increased drastically, particularly for companies as also for national debtors. There was considerable enhancement of benefits related to autonomous risks in the region, which were obviously lesser as compared to previous crisis situations. Such circumstances allowed major disparities to occur in most of the Caribbean countries. Despite the fact that the financial activities of the region have not been exposed to the so called toxic assets, the issues of international interbank functioning and the influence of tightened external credit controls rendered the disturbances in the financial markets of developed countries to become more strong in the Caribbean. At the same time, the extent of this influence cannot be fully measured because presently available data is not sufficient to substantiate such results (Hanan and Mansuri 2009).

It is a matter of much concern that in terms of accessibility of credit for a large number of regional companies in several Caribbean countries, most of these companies had found financial sources in global markets. In view of the financial crisis and the increase in credit prices in global financial markets, it became extremely difficult for regional companies to comply with borrowing conditions of banks (Weber and Derbellay 2008). Consequently, the reduction in available external finance will compel bigger private companies to start relying on domestic markets that are also likely to be adversely impacted by liquidity squeezes. Such circumstances, along with enhanced uncertainty, will in all probability create greater difficulties for small and medium companies to avail finance from domestic banks. Intercompany borrowings in productivity is observed to be declining sharply in the entire region because of which investment projects and established business practices have come to a virtual halt. Obviously, such circumstances have strongly hurt the financial status of a large number of companies in the Caribbean (Hawkins, 2008).

As the global financial situation tightens, it will create adversities on the inflow of foreign direct investment (FDI) in the entire region. It is known that foreign direct investment inflows in the region had created a positive economic environment and the governments as well as the private sector were looking forward to rapid economic growth because of inflow of capital that was so far only a small trickle. The flow of FDI in the Caribbean region comprises mainly of investments related primarily to tourism. In 2008, tourism and accounted for almost 25 per cent of gross domestic product. For instance, there were many countries in the Caribbean and Latin American regions in which FDI flows accounted for about 80 per cent of the gross domestic product while in some countries they were a meager five percent of gross domestic product. Under the circumstances, it is obvious that with the decline in economic growth, FDI inflows will also decline drastically in these countries. Another impact of slowing down of the economies in the region is that it will lead to a reduction in incentives related to FDI. The liquidity crisis in the region will reduce the potential of companies to involve in taking over other companies and in collaborating to merge with other companies. In effect, this is the main process through which foreign capital is received in the Caribbean and Latin American regions. Overall, it can be said that inflow of FDI is expected to decline drastically in the coming future. The economic slowdown in developed countries and rapid decline of emerging economies will create a reduction of demand for export goods from the Caribbean region. It is known that the US position as an importer from the Caribbean region has been varying consistently from country to country, in the region. Imports from the Caribbean region have been consistently falling just as what is happening in other countries across the world (Mihaljek, 2008).

Imports into the US from Caribbean region and from MERCOSUR that comprised mainly of commodities have also started declining. This is perhaps because of increased imports to China from the region. The decline in merchandise from Caribbean that has resulted from the financial crisis will have strong influence on the development of open economies because those that are trading with developed countries will be able to find alternative markets. In contrast, many of the Caribbean countries will experience negative growth because of the decline in demand for tourism. This is because demand for tourism is known to be highly income elastic. As a consequence, there is likelihood that Caribbean countries will be most strongly impacted by the economic downturn (Gupta and Buvincic, 2009).

The job market in developed countries will adversely impact remittances sent by Caribbean Citizens to families in the home country. Such remittances have proved to be a significant source of revenue for Caribbean countries and a means for the banking sector to fund development activities in the region, especially in improving the living conditions and income of citizens. In countries such as Haiti, Gautemala, Nicaragua, El Salvador and Jamaica, revenues from such remittances account for about 15 to 40 per cent of the gross domestic product (Economic Commission for Latin America and the Caribbean, 2009). It is thus evident that if foreign remittances are reduced they will create a negative impact on the status of low income families in the region. As commodity prices fall because of slowing economic growth there will be weakening of the terms of trade in the entire region; but the impact of such circumstances will vary in different countries. Steady increase in commodity prices have been the outcome of such circumstances. Although there has been wide ranging increase in commodity prices in the Caribbean region, the increases have been specific in regard to items such as oil and metals and foods such as wheat, maize and soybean. The indexes pertaining to several items in the entire region had reached high levels by August 2008 after which there was a sharp decline that was brought by deflationary and recessionary pressures because of the global financial crisis (Gupta and Buvincic, 2009). It is noteworthy that oil prices in the region during November 2008 were almost the same as price levels that prevailed in 2004. However, the prices had fallen considerably by the beginning of 2009.

In many Caribbean countries, commodities account for a significant percentage of the total exports while in some countries they are a good source of revenue for the government. Therefore, decline and volatility in commodity prices will create circumstances that contribute to regional business activities to come to a virtual halt (Ayadi and Behr, 2010). For the entire region, trading circumstances did improve during 2008 but fell by 7 percent in 2009. In countries such as Peru and Chile that are the leading exporters of metals, the terms of trade were found to be deteriorating by 2009. The poverty and employment circumstances in the entire region have been influenced because of such diffusion channels. Their intensity varies in accordance with the production processes followed in different countries. Unemployment did increase in the short term in several countries in the region and real wages had come to a virtual standstill. Concurrently, the economic slowdown in Caribbean region has led to a decline in demand for labor by large organizations because of which there have been increasing occupancy levels in low productivity organizations. This is primarily because unemployment insurance is not available in the region.

The informality rate in the region is estimated to be about 50 per cent and given that informal workers are unskilled and do not perform high quality work, the condition of these workers is largely related with lack of social security, low pay scales and high levels of instability. In view of the fact that small and medium size companies are conventionally known to create larger number of jobs, the effect on employment will be defended to a large extent by the ability of companies to face the prevailing adverse circumstances (Bourne, 2008). There will be increasing employment in the informal sector which will further lead to larger number of workers who are not financially well off and who will not be able to have enough money improve their standard of living. In the entire Caribbean, informal workers comprised 33.3 percent of poor population as against 16 percent that were formal workers. A distinct relationship has been found to exist amongst informal workers and poverty conditions, which implies that there are strong risks of increasing poverty levels if the planned fiscal measures do not improve financial status of the population, particularly in the case of the informal sector. Additionally, given that low income families are deprived of alternative sources of income, there is all likelihood that poverty levels will increase (CARICOM, 2011).

Measures Taken to Address the Effects of the Crisis

Caribbean countries have been adopting varied policy initiatives in attempts to respond to the financial crisis. Despite macroeconomic factors being quite strong as compared to the past, the Caribbean region cannot remain protected from the adversities of instability in global financial sectors. The same is true in regard to recessionary pressures in the developed world. The measures implemented by these countries are quite varied because the impacts are different in different countries. The instruments required to be implemented are also diverse because of disparities in the available resources for the given countries and their ability to adopt the given initiatives. Their ability in this context is dependent on the fiscal options available to finance initiatives and policy measures whereby implementing them involves using public funds. Governments can also make use of foreign exchange policy measures that depend upon the availability of credits pertaining to foreign currencies. In these circumstances, the only option is to deal with global financial institutions.

A positive solution in this context can be the use of Keynesian fiscal solutions in terms of stimulus whereby government spending is increased in infrastructure projects. However policy makers have to be sure that such stimulus measures are implemented at the right time so that there is sufficient credibility in doing away with apprehensions relative to debt sustainability (Carstens and Jácome. 2008). Other than taking care of such possibilities, it is important to consider the affect of such policy measures on other sectors in the economy. A complete analysis has to be carried out in terms of the economy’s ability to involve other aspects such as the extent of monetization, the strength of financial sector and the balance of payments current account balance. Policy makers have to keep in mind that demand based strategies leading to enhanced public spending other than fiscal influence could increase the financial deficits that are not within the country’s ability to finance. In this context, foreign currency availability will depend on whether there is adequate fiscal flexibility for maneuvering. In the short term, fiscal and monetary policies mostly create fast reactions in the economy because the main objective is to refrain from contagion relative to external financial volatility (Hughlette 2010, vol. 46, pp. 350-456).

Measures in this regard typically include reducing reserve requirements, providing credit options to internal banking sector, intervening to improve the condition of problematic financial institutions, repurchasing government bonds and moving from long term to short term bonds. Initiatives to create liquidity can be undertaken in order to improve situations relative to domestic and foreign currencies. These strategies are mostly used in avoiding future losses in terms of providing liquidity and allowing national credit markets to perform on a normal basis. They are also used to provide funds where it is not possible to get them from financial markets, which is done by combining the strategies with other options. Although responses to such measures are received quickly, their impact in fostering actual growth is not yet clear. Further, such measures can also be rendered ineffective because of the presence of foreign currency credit or can be positively impacted depending upon the extent of the economy’s monetization, external assets and the strengths of the financial markets (Crystal et al. 2007).

According to David (2007), fiscal policies can play the role of acting as counter cyclical instruments that are devised for driving the economy towards the required levels of economic growth. The impact of such measures is mostly known during the long term, in contrast with monetary policies, which deliver immediate results. This mostly happens through the two policy measures of increasing subsidies and cutting taxes. Other measures are also effective in creating positive impact on demand in the medium term, which includes trade policies, sectoral policies and labor and social policies to help entities adversely impacted by the economic crisis. These policies are mostly implemented through use of measures such as export financing, import restriction and change in tariffs. Sectoral policies are aimed at sectors such as small and medium enterprises and the agricultural sector.

Flaherty (2010) holds that although the outcome of these measures cannot be known immediately, they do create a strong impact on internal demand and also function as necessary compensation strategies. There are some other measures that may not provide instant relief but they do benefit long term economic growth. Policies such as infrastructure spending, developing health and education facilities and introducing specific measures to build capability aim at improving training and education. They are also directed towards nurturing and shaping particular structural improvements, corporate players and encouragement of regional integration and cooperation.

Methodology

Approach

For this research, the triangulation approach has been used because of the wide scope of the study (Axim & Pearce 2006, P.56). It has involved the use of three methods namely; interviews, surveys and document search (Kothari 2008, p.90). The choice of interviews has been informed by the adaptability they offer (Kvale 1996, p.73). For example, the body language of the respondent can help in obtaining more information. The use of surveys is justified by the fact that they can be completed at the convenience of the respondent and can also reach many people (Ethridge 2004, p. 63). Document search will be helpful in finding information on previous work on the topic (Kumar 2005, p.89). The use of several methods will help in ensuring accuracy of the findings (Scruggs & Mastropieri 2006, p.91). The study has been conducted in all the 13 countries in the Caribbean region. The participating financial institutions were chosen at random (Lohr 2009, p.78). This reduces bias by giving every institution an equal chance of being selected (Kalton 2006, p.43). Document search was used to collect secondary data. The data can be obtained from journals, text books, libraries and internet sources. The sources will be vetted for accuracy and relevance before being reviewed (Philips & Stawarski 2008, p.99).

Interviews were used to collect primary data (King & Horroty 2009, p. 102) and were conducted via video interviews. The interviews involved structured questions that guided the study as well as questions that transpired during the course of the interview. The questions aimed at capturing facts about the topic instead of personal opinion (Salmons 2009, pp. 45-78). The respondents were informed prior to the interviews about the purpose of the research and that their responses will be treated in the strictest confidence. They were categorically assured that their names or other details will not be shared with any third party and if at all there is any need to do so, prior permission will be taken from them. The following questions were asked from respondents that were chosen at random from amongst bank managers, business owners and government authorities:

Questions

1. What is your name?
2. What is your age?
3. Where do you work?
4. What is your qualification?
5. What do you feel about present condition of the economy of your country?
6. Do you feel that the country has been adversely impacted by the financial crisis?
7. What according to you is the biggest problem created by the financial crisis?
8. How good was the state of the economy before the financial crisis?
9. What according to you is the main cause of the financial crisis?
10. Have you personally suffered any personal hardships because of the financial crisis?
11. What o you feel about the present status of borrowings from banks in your country?
12. What is the status of bank loan repayments in your country?
13. Who are the main borrowers from banks?
14. What do you feel about the impact of American fiscal policies on your country?
15. What are the requirements for getting loans from banks in your country?
16. Given that the recession has been continuing for about three years, what according to you is the biggest fiscal issue created in your country because of the crisis?
17. According to you what are the areas where fiscal policies should be changed?
18. How long do think the recession will continue?
19. According to you what are the shortcomings that banks in your country should remove?

Surveys

Surveys were also used to collect primary data (Groves, Fowler & Couper 2009, p. 98). It involved administering anonymous questionnaires to the respondents (Fowler 2009, p. 45). The questionnaires were mailed to the respondents. The respondents were chosen mainly from amongst citizens of different Caribbean countries after they were informed about the purpose of the research and that their responses will be treated in the strictest confidence. They were categorically assured that their names or other details will not be shared with any third party and if at all there is any need to do so, prior permission will be taken from them. A letter explaining the purpose of the study and how the questionnaires are to be completed were also mailed to the respondents (Foreman 1991, p.76). They were asked the following questions:

Questions

1. What is your name?
2. What is your age?
3. Where do you work?
4. What is your qualification?
5. What do you feel about present condition of the economy of your country?
6. Do you feel that the country has been adversely impacted by the financial crisis?
7. What according to you is the biggest problem created by the financial crisis?
8. How good was the state of the economy before the financial crisis?
9. What according to you is the main cause of the financial crisis?
10. Have you personally suffered any personal hardships because of the financial crisis?
11. What o you feel about the present status of borrowings from banks in your country?
12. What is the status of bank loan repayments in your country?
13. Who are the main borrowers from banks?
14. What do you feel about the impact of American fiscal policies on your country?
15. What are the requirements for getting loans from banks in your country?
16. Given that the recession has been continuing for about three years, what according to you is the biggest fiscal issue created in your country because of the crisis?
17. According to you what are the areas where fiscal policies should be changed?
18. How long do think the recession will continue?
19. According to you what are the shortcomings that banks in your country should remove?

Data Analysis

The collected data was analyzed using statistical tools and the determinants to be measured included economic performance by way of profits of banks, percentage of non-performing loans, credit creation and level of deposits. The responses from interviews and surveys were compiled in arriving at the given conclusions that are discussed below:

Table I Analysis of Caribbean Banking Sector

The table shows there were thirty respondents that the number of respondents who asserted to or confirmed the providence of each theme in the context of their agreement with the prevailing environment in he banking sector in the Caribbean region.

The responses from 1 to 5 pertained to the following:

1. Strongly Agree
2. Tend to Agree
3. Neither Agree nor Disagree
4. Tend to Disagree
5. Strongly Disagree

All the people surveyed, are based in different parts of the Caribbean region and have been involved in banking operations for at least three years. It is evident from the mean responses that majority of respondents agree that the financial crisis has significantly impacted the banking industry in the region. Thus, it appears that the survival instinct is the main objective of government and private banks in the region while American and European Banks are optimistic and do not appear to be worried about the status of the sector in the Caribbean. The main barrier for banks is identified as inappropriate policy measures to protect them from global volatility that is primarily because of high level of dependency upon foreign banks and their extreme vulnerability to financial pressures. The profitability of banks classified as small, medium and large were examined and the results are presented in table I below.

Table II: Profitability of Commercial Banks by Size during 2008 and 2009

Source: Fretes and Villela. 2010, ‘The impact of the international financial crisis on Latin America and Caribbean economy’, Institutional Capacity and Finance Sector, vol. 23, no. 3.

Table III: Profitability of Banks by Ownership during 2008 and 2009

Source: Fretes &Villela. 2010, ‘The impact of the international financial crisis on Latin America and Caribbean economy’, Institutional Capacity and Finance Sector, vol. 23, no. 3.

Economic growth in Caribbean countries has demonstrated a consistent decline during the last twenty years. Although the growth in per capita Gross Domestic Product (GDP) did increase in the late 1980s and beginning 1990s, it showed a declining trend during the later years of the 1990s. So was the case during the first few years of the 21st century, because of the fact that the average increase in per capita GDP was only two percent during the period 1980 to 2004. This feeble growth was tied up with increasing debt amongst Caribbean countries (CARICOM) to such levels that most countries in the region were ranked amongst the 30 most indebted developing countries of the world. Obviously, such a pattern of weak performance and the high debt situation became a matter of great concern (CARICOM, 2011).

A major factor that led to declining fiscal outcomes was enhanced expenditure, which was not adequately supported with revenue growth. Tax burdens in the region continue to be high and increasing the burden will not be a favored policy initiative. Instead, tax reforms have to be seen as ways to evenly spread tax burdens on equitable basis amongst different sections of the population. This way, generating revenue will become more feasible while encouraging economic growth. Policy measures can be initiated in the light of the following table that provides the debt position in the region during 1990 and 2008.

Table IV: Public and publicly guaranteed (PPG) debt (% GDP)

Source: Carstens, A and L Jácome. 2008. Latin American Central Bank Reform: Progress and challenges, IMF Working Paper No. 114, International Monetary Fund.

Economies in the Caribbean region are quite small and are constrained by their narrow resource base that restricts diversification of production structures. Additionally, the high level of openness characterizing small economies means that economic growth is restrained because of balance of payments that impacts foreign exchange availability, which in turn is needed to fund imports and production activities. Further, the susceptibility to global events has been impacting fiscal policies in the region because of repeated instances of natural calamities that have had devastating effect on Caribbean economies. Such circumstances prove to be of intense disruption to the capability of these countries in achieving their development objectives.

Effectiveness of measures: liquidity in the economy and stability of financial markets.

The main obstacle in the study was accessibility because the investigation was done in a number of countries. Travelling to these countries required a lot of time and financial resources (Fuller 2009, p.67). Access to secondary data can also be a challenge. While articles on the topic exist at the local libraries, it is important to visit libraries at the Caribbean countries for more accurate information. Since the materials in these libraries can only be used within the libraries, it became necessary to make several visits. Thus the libraries were visited throughout the week except on public holidays when they are closed.

While interviewing the key informants, they were a little reluctant to disclose some information such as the financial positions of their companies. Some respondents did not complete and submit the surveys in time. Ambiguity or unclear instructions in the surveys can also make it difficult to answer the questions (Foreman 1991, p.88). Hence the respondents may have rejected the questionnaires for such reasons. The information in some of the secondary sources of data is based on opinions instead of facts. Thus the information obtained from such sources might not be entirely helpful in making accurate conclusions. Finally, the respondents may have given inaccurate information due to lack of adequate knowledge on the topic.

Ethics

The main concern in this study is confidentiality over the information given by the respondents. To ensure confidentiality, the surveys were anonymous and the names of respondents have not been mentioned in the dissertation (Smith & Francis 2006, p. 112). The information given by the respondents will be used for academic work only (Mauthner, Brian & Jessop 2002, p.56). It will also be necessary to obtain permission before obtaining information from employees of various companies (Gregory 2003, p. 93). The relevant authorities will be contacted before retrieving information from government databases.

Position as a Researcher

As a researcher in the field of economics and business, I do have prior knowledge about some aspects of the topic. Thus utmost care has been taken to avoid making conclusions based on personal opinion. The conclusions are based on evidence collected during the study. Finally, it is confirmed that a professional bent of mind has been adopted during the study (Israel & Hay 2006, p.79).

Effectiveness of Measures

The methodology for this research pertained to examining the recent economic crisis and how it undermined the performance of the banking sector in the Caribbean region, by analyzing documents and relevant data. It is known that the financial crisis led to the closure of some financial institutions in the region. Consequently, the citizens who invested in the institutions that collapsed lost millions of dollars. Many investors have lost confidence in the region’s banking industry and this has limited investments in the sector (Ingo & Mattoo 2009, vol. 30, pp. 1-20). Besides, various governments have spent a lot of funds in rescuing financial institutions (Hanan &Mansuri 2009, vol.88, pp. 232-241). There is a reduction in economic growth due to limited credit facilities. This is because the banks in the region are underperforming (Leora, Berger & Rima 2009, vol. 30, pp. 99-118). It is therefore necessary to investigate how the economic crisis affected the performance of the banking industry. The findings will provide the data and information that is needed to make polices that can be used to restore stability in the region’s banking industry.

The implicit damages in the Caribbean became quite serious in terms of declining economic activities, increase in unemployment, decline in exports, weakening of the tourism sector, sharp decline in foreign remittances, reduction in foreign direct investments, deterioration of fiscal balances and increase in public debt. The financial crisis destroyed a large number of financial institutions in several regions across the world amongst those that were household names. Several other banks had to resort to seeking life support in order to sustain themselves through governments support.

Fiscal policies often act as counter cyclical instruments that are devised for driving the economy towards the required levels of economic growth. The impact of such measures is mostly known during the long term, in contrast with monetary policies, which deliver immediate results. This mostly happens through the two policy measures of increasing subsidies and cutting taxes. Other measures are also effective in creating positive impact on demand in the medium term, which includes trade policies and labor and social policies to help entities adversely impacted by the economic crisis. These policies are mostly implemented through use of measures such as export financing, import restriction and change in tariffs. Such policies are aimed at sectors such as small and medium enterprises and the agricultural sector.

Relation to Previous Research

The Caribbean region is currently experiencing a fiscal deficit of 4% of its total GDP due to the effects of the economic crisis (Sergent 2010, vol. 23, pp. 67-78). In some countries like Jamaica, the deficit is as high as 9% (Fretes & Villela 2008, vol. 23, pp. 102-120). Surinam experiences the lowest fiscal deficit of 2.3%. The region’s banking industry was not severely affected by the economic crisis due to the following reasons. First, the region has always been conservative concerning investments in instruments with high risks such as derivatives (Tsikeky, Moreira & Hamilton 2009, vol. 40, pp. 350-400). Hence the risk profile in the region was low. Second, the region had limited exposure to instruments associated with mortgages and derivatives which were responsible for the economic crisis. Finally, the region’s banking industry has little integration with international financial markets (Mayes 2006, vol. 8, pp. 20-39). Besides, the region had avoided borrowing from overseas banks (David 2007, vol. 6, pp. 36-78). Thus it was not affected through the contagion effect.

The economic crisis had two main negative effects. First, it led to the closure of Stanford ltd and the collapse of CL Financial ltd (Hughlette 2010, vol. 46, pp. 350-456). The two institutions had invested in real estate and equities which have high risks. They also offered products which had high returns but associated with greater risks. The collapse of these institutions lowered the investor’s confidence in the industry. Second, the economic crisis led to excess liquidity in the economy (Hughlette 2010, vol. 46, pp. 350-456). There was a great reduction in the demand for loans as economic activities slowed down (Caruana 2010).

First, there was no proper supervision of the banking industry in the region (Flaherty 2010, vol. 3, pp. 1-6). Hence the governments could not protect the investors by regulating the activities of financial institutions (Economic Commission for Latin America and the Caribbean 2009). Second, most financial institutions lacked proper internal controls to guide their investments (Shah 2010). Thus they invested in high risk instruments such as derivatives. Finally, the institutions that were greatly affected had failed to raise the minimum capital and liquidity requirements (Sahay, Robinson & Cashin 2006, vol. 991, p. 178)

The Caribbean banking industry has largely been able to divert direct hits and has been able to demonstrate resilience against the pressure of the biggest economic and financial crisis experienced after the great Depression. Banks in countries such as Trinidad and Tobago were able to survive adversities of the fiscal crisis because they were not exposed to the US sub prime markets, primarily because the US had no investments in theses banks. While the financial markets were in full bloom, some Caribbean countries were criticized for not become aggressive and introducing new concepts in the market because these countries chose to focus on only the basics of banking (Central Bank of Trinidad and Tobago. 2008). In other words, they depended upon traditional systems of banking by attempting to raise deposits and providing good services. It was therefore not surprising that the national banks in the Caribbean that opted to adopt debt instruments and other financial products ultimately got stuck up in problems. In this regard, many banks in the Caribbean were fortunate to not involve themselves in high risk instruments.

Financial crisis is known to be characterized with declining asset prices in terms of stocks and sector as well as failure of financial and non financial instruments and declining prices in foreign exchange markets. However, in many Caribbean countries the focus was mainly on regional banking systems that did not result in failure of commercial banks, while banks that were on the brink of failure were offered support by their respective governments, such as CL Financial and the Standford International Bank. Economists believe that the Caribbean financial sector was able to escape from direct contagion effect primarily because of its conservative banking practices and because of the fact that credit policies adopted were on the basis of practices of deposit mobilization instead of interbank and foreign borrowings. It can be correctly said of the Caribbean banking sector that it was not directly exposed to the sub prime market controversies and to foreign derivatives that were dominating global financial systems, which were mainly responsible for the collapse of financial institutions across the world. However, the regional financial systems of the Caribbean could not prevent themselves because the impending adversities resulted in the failure of some institutions such as the CL Financial Group and the Stanford Bank in Antigua. The collapse of the banks represented the phase in which the resistance of the banking system was actually tested in terms of the systematic risks that were imposed upon the entire region’s banking sector. The banking sector was also provided support through government interventions in many countries in the region.

In view of the economic slowdown in the Caribbean, the numbers of non performing loans have been increasing in the portfolios of Caribbean commercial banks. For instance, in Jamaica the number of non performing loans had been consistently increasing in the financial sector and had reached 57 per cent by the end of 2008 and 61 per cent by 2009. The International Monetary Fund declared in 2009 that the banking system in Trinidad and Tobago was quite robust in having a strong capital and profit base in spite of increasing number of non performing loans that would require to be monitored cautiously. In view of the increase in non performing loans many of the banks in the Caribbean had started changing their lending procedures that have resulted in slow credit growth. Recent figures have suggested that finance provided by banks to the private sector in 2009 has declined by one per cent in the Caribbean region. Many financial institutions in the Caribbean have started adopting prudent lending policies till the time the recession fades away. In view of emerging patterns whereby there is considerable increase in delinquency in regard to bank loans, especially in areas that are dependent on tourism industry, there has been considerable reduction in hotel rates in attempts to attract tourists.

Although visitors to tourism islands have been stable in many parts of the region, their spending has declined considerably and it can be said that tourism is declining because of the ripples created by the financial crisis. Most of the people working in the tourism industry in the Caribbean are not getting adequate work, which is obviously impacting their ability to survive financially. In many parts of the Caribbean, non performing loans had not been increasing at a rapid pace and in some areas delinquency rates were better than what they wore during the boom period. The most significant impact has been on high levels of liquidity situations and reducing demand for loans because of which banking margins have declined considerably and thus the banking sector’s revenues have fallen in comparison to past years. A characteristic feature in terms of better liquidity is that whenever the government gets involved in business related to budgeting it puts in more money into the economic system, which leads to more payments being made to investors and policy holders. The newly created investors and policyholders had approached the banking system with their cash, because of which the demand for loans declined considerably. Moreover, loans start getting repaid, which further adds to the liquidity status at any given time. Financial sectors in many countries in the region continue to be good performing sectors of the economy although consistency in maintaining this situation is risky because the financial crisis will impact prices of major energy export products and energy exports. This aspect is more directly related to the financial crisis in the region which appears to be the biggest market for non energy exports.

There has been a constant decline in the demand for investment finance, typically in the domestic manufacturing sector in spite of the reduction in the repo rates by many central banks in the region. Actually, the banking sector is flushed with liquidity and there is no demand, whereas in recent times the banking sector has witnessed increasing numbers of mortgage defaulters. This development has led to lot of worries in view of the region’s conservative banking sector that is not able to hold on to excessive liquidity. Moreover, because of the global financial crisis the banking sector has enhanced the qualifying conditions for providing loans by insisting that it is better not to give loans than to increase exposures to risky funding. Questions are now being raised as to how the banking sector in the Caribbean will be able to make profits under such circumstances. Another issue pertains to whether the Caribbean financial sector is prepared and conscious about the financial crisis, lack of proper supervision, financial regulations and reforms being carried out by most governments, which are apparently not in keeping with the latest financial development across the world.

The fact remains that in the Caribbean, policymakers cannot do more than what is being done presently because many of the new financial products originated in the United States and were aimed at dealing with accounting and regulatory hurdles that reduced the ability of banks to take risks. It is true that if any financial institution is dealing with customers by keeping in view its balance sheet, even the most efficient regulators will face extreme difficulties in achieving good performance. The Caribbean banking sector has been assisted because it chose to continue with traditional approaches to banking in terms of loans and deposits that have allowed regulators to operate easily and to render banking in the Caribbean to become less risky. It is widely believed in the context of regulation that the banking sector in most Caribbean nations is efficiently regulated. Greater involvement of the Caribbean banking sector is required in credit unions and the insurance sector where a stronger need is felt for introducing regulation and legislation to comply with the increasing changes and transformation of financial institutions.

Bankers in the Caribbean region have agreed that they were not proactive in spite of having knowledge about the impending financial crisis. But they are in agreement that mistakes cannot be repeated and the required actions must be initiated in Parliament so that regulations are enforced judiciously in order to improve the economic environment of the region that cannot afford to take risks that are being taken by developed countries. The collapse of some financial institutions in the Caribbean has underlined three major faults pertaining to regional regulations:

• Lack of cross-border collaborations
• Inadequate monitoring of non-bank financial institutions,
• Political interference in the regulatory process.

Many financial institutions in the region are operating from several locations, which mean that legal and regulatory procedures will have to be implemented on a regional basis otherwise regulatory measures will be left unimplemented effectively. Other than the inadequacies of cross-border regulations, there is strong level of inadequacy in regard to supervising non bank functions in the region. Considerable efforts and resources have been employed in making regulatory bodies more effective so that they can effectively monitor non bank financial institutions such as insurance companies and mutual funds. However, it is widely felt that most of the new initiatives in this regard may not succeed entirely unless there is a strong political initiative in supporting them. At the same time, politicians need to keep away from regulatory bodies so that they can do their work impartially (Ferrier and Lo, 2000).

Measures Taken

First, regulatory measures such as minimal capital and liquidity requirements were introduced by governments (Ayadi & Behr 2009, vol. 3, pp. 179-201). Second, various central banks reduced interest rates in order to encourage borrowing and improve liquidity in the economy. Finally, the local banks adopted sound banking principles. This included high service quality as well as being conservative in giving loans and investing in high risk instruments (Whiteway 2010, vol. 34, pp. 321-356). Credit creation was based on the level of deposits instead of inter-bank or international borrowing (Weber & Derbellay 2008, vol. 10, pp. 1-16).

The conservative approach in credit creation helped in maintaining the level of non-performing loans at below 3% (Bourne 2008, pp. 1-6). However, the conservative approach in investing in foreign markets reduced the region’s economic growth (Economic Commission for Latin America and the Caribbean 2009). Despite the reduction in lending rates, the demand for loans is still low due to underperformance of the economy (United Nations 2009). The fiscal consolidation policies implemented by various governments led to increase in poverty and inequality (Gupta & Buvincic 2009, vol. 23, pp. 347-369).

Even three years after onset of the financial crisis it is evident that the entire Caribbean region suffers an average deficit of 4% of gross domestic product, although this ratio is seen as being as high as nine per cent of gross domestic product in countries such as Jamaica and as low as 2.3 per cent of gross domestic product in countries such as Suriname. The ripples of the financial crisis and global recession continued to be felt in many countries of the world and in keeping with this pattern the crisis has adversely impacted economic growth in the Caribbean also. In many Caribbean countries, the main area of concern relates to public debt and fiscal deficit that need to be effectively dealt with by adopting strong monetary and fiscal measures, obviously with the involvement of the banking sector in the region. Additionally, in some countries such as Barbados and Barbuda, the public debt is slated to increase by more than hundred per cent of gross domestic product, whereas in countries such as Antigua, the government debt to gross domestic product ratio is expected to exceed 115 percent of gross domestic product. As governments introduce fiscal policy and other strengthening measures in attempts to cope with the prevailing fiscal constraints, it is expected that the level of poverty and inequality will continue to increase in the region, thereby invalidating most of the programs that have been initiated in achieving the millennium development objectives during the last ten years.

The financial and banking sectors in the Caribbean have not been able to prevent themselves from the adversities of the global financial crisis, but it is fortunate for the banking sector that it has been able to resist most of the destructive forces that have overwhelmed the financial sectors of many developed countries. Some examples of the adverse impacts on the financial sector in the Caribbean include the financial debacle of the CL Financial Group and Stanford, declining levels of loan portfolios and regulatory failures and legislative controls. In regard to failure of the CL Financial Group and Stanford, it can be said that immense harm has been done to the two institutions in addition to the sufferings that their customers have had to undergo. However, on a positive note, the government intervened at the right moment without which the contagion impact financial sectors would have been much worse.

Findings and Analysis

Characteristics of Caribbean Banking Sector

The Caribbean banking sector has always been adopting conservative approaches whenever there were opportunities to invest in high risk instruments such as derivatives. But such conservative approaches implied that the Caribbean did not have adequate exposure to derivative instruments and sub prime mortgage sectors. The US investment banks did not dump mortgage guaranteed securities in Caribbean markets because of which the region’s banking sector has been characterized with restricted amalgamation of regional banks with international financial markets. Additionally, there has been restricted borrowing by Caribbean countries from foreign banks, which means that over all, the regional banking sector in the region was minimally exposed to the financial crisis. Some financial institutions in the region were involved to some extent with AIG, Merrill Lynch and Lehman Brothers. The exposures in this regard were relatively small in the context of banks’ total asset values. The Caribbean banking systems continue to remain adequately capitalized with low levels of loan delinquency. The short term borrowing from foreign sources constitutes only about four percent of the total deposits in the region’s banking systems (Crystal et al. 2007).

Impact of Financial Crisis in the Caribbean

Although the region’s financial systems were not severely impacted by the financial crisis, they are adversely impacted to some extent because of the failure of institutions such as CL Financial Group and CLICO, which underwent a great deal of hardships. The crisis for such groups resulted in severe problems and the government had to intervene. But a detailed examination of the situation reveals that these companies were functioning in an atmosphere of weakened domestic controls that impacted all subsidiary companies of the big conglomerates after eruption of the financial crisis. CL Financial Group is involved with investments in areas such as banking, health care, oil, energy, agriculture, distribution, manufacturing, real estate and finance. The company was amongst the biggest organizations operating in the region. CLICO was engaged in short term deposits and was accruing interest that was much higher than the rates prevailing in the financial markets. The risks operated by CLICO related to sectors such as energy, equity and real estate as well as many high risk companies. This company faced high risks because of inter group investment operations. Stanford was another big company that provided financial instruments that gave high returns although the products were characterized with high risks because they operated in line with Ponzi schemes. The collapse of Stanford and CLICO has made regulators in the region apprehensive because investors risk losing millions because of the adverse impact that is created in terms of the confidence on financial systems.

A major effect of the financial crisis that is continuing to impact the financial sector in the Caribbean is the large amount of money that continues to circulate in the region’s financial sector and is unable to find suitable banking propositions. A marked pattern has been the decline of private sector credit in majority sectors other than mortgages. This pattern has emerged despite reducing interest rates across the entire Caribbean. Moreover, although the central banks are taking repeated actions by way of managing liquidity, not much positive results have been achieved. Central banks have been constantly reducing their repo rates that presently stand at four percent. Deposits are falling and presently stand at an average of one percent, which is why banks are facing problems by way of getting outlets for the excessive liquidity. Though the banking sector is facing difficulties in getting such outlets to manage excessive liquidity and despite the fact that economic growth continues to be less or negative in most Caribbean countries, delinquency in loans has not been increasing and has not reached beyond two percent in the entire region (Watson, P.K. 2009).

Weaknesses: Caribbean Banking Sector

According to Demirgüç-Kunt and Detragiache (2008), although the Caribbean banking sector has always been regulated tightly, a number of laws have become obsolete. Moreover, the banking sector in the region has been suffering from weakened supervisory capacity as well as minimum funding requirements that sometimes lack the provisions and practices of restricting relative party transactions. Such shortcomings have been imposing challenges for policy makers in the region since the eruption of the financial crisis and continue to create difficulties because the required regulation is still to be introduced. It can thus be said that the global financial crisis has impacted the Caribbean banking sector and has created a series of regulatory reforms and supervision systems that will make the region’s banking more flexible in the coming future. However, the Caribbean banking sector continues to face difficulties in loan portfolios because of weakened demand for credit and this situation cannot continue for long (Demirgüç-Kunt and Detragiache, 2008).

Remedial Measures

Central Banks in the Caribbean Community (CARICOM) is the organization of Caribbean banks that has started taking initiatives through crisis management plans. In fact, this is the regional response to the crisis faced by the banking sector during the processes of its operations in different jurisdictions in the region. The organization (CARICOM) has initiated plans to resolve the crisis situations involving liquidity and the impending insolvency of any bank in the region. The organization has planned to introduce principles and concepts in being prepared to take care of crisis identification, systematic risk assessments and the ways in which procedures can be introduced to adopt stable communication strategies across the region. It is evident that there is a strong need for adopting provisions and making plans so that understanding is enhanced amongst different banks in the region (Watson, 2008). At the same time, the banking sector in the Caribbean faces a number of challenges because of which arrangements have to be made in identifying and addressing such problems. There are many issues for the Caribbean banking sector relative to the current financial crisis that warrant immediate remedial and correction measures:

• The ways in which the cost of remedial measures for stabilizing the financial sector in the region be divided in terms of cases where there are chances of spillover contagion amongst different jurisdictions.
• The methods by which policy and legislative complexities can be resolved, relative to exchange controls that have the potential to reduce and influence flow of funds into difficult sectors in situations when there is resolution of private sector crisis situations or bail out of public sector organizations.
• The ways in which variation in diverse supervisory and legislative systems will be managed by members in their respective jurisdictions that could influence their capability to effectively take part in the given regional plans.

It is evident that implementing regional plans for crisis management will allow banks in the Caribbean to become more competent in tolerating and absorbing shocks and thus create an atmosphere that delivers as per expectations of businesses and citizens in the Caribbean region, on a consistent basis. This will further lead to the much required stability to encourage growth, creativity and innovation in productivity. Banks in the region have been able to remain solvent primarily because of their ability to avoid excess exposures to risky investments. They mostly adopted approaches that focused on projects with excess liquidity that could be diverted into channels of safe investment such as foreign sovereign debt instruments and government securities. Additionally, the practices of spreading intermediate funds and applicable funds amongst different services and transactions allowed most banks to retain their healthy flow of profits (Domanski, 2007).

There was considerable scope for dealing with systemic risks because the financial systems in most parts of the region were competent to deal with the economic crisis. Other than the regulations and reforms, there have been focused attempts to train and expose managers in such functions. Across the entire region, reviews have been made of strategies to ensure that there is stability in the financial systems. A detailed analysis has been made of the most efficient managerial models pertaining to varied jurisdictions by considering the different characteristics of the financial sector. Irrespective of whether it is systematically significant, it is important for all banks in the Caribbean to efficiently supervise so that managers can impart information that is of significance in compiling financial stability reports. Moreover, a distinct pattern observed in the region has been the increasing collaboration amongst regional financial institutions to make sure that the Caribbean reaps the benefits emanating from increased domestic initiatives. The best approach in this regard is to adopt a well coordinated regional procedure towards crisis management. Institutions of regulators have been set up and assembled relative to essential supervisory problems in the financial landscape.

Lessons Learnt

It is evident that some crucial lessons are learnt from the current financial crisis:

• There has been considerable shift of information amongst domestic and international regulators.
• A cautious and exhaustive analysis and review of the planned financial instruments and products should be undertaken before their launch.
• There is strong need to frame contingency plans to provide for domestic and regional eventualities relative to the financial crisis.

The extent of economic dynamism that was prevailing during the period 2003 to 2007 has changed considerably. A marked pattern has been observed whereby external problems that were tackled effectively have again reappeared quite strongly. The current asymmetry amongst strong mobility of capital and inadequacy of regulating financial markets as well as the inflexibilities in productivity that is characterized with restricted diversification has led to increased risks for development and economic growth in the Caribbean. Additionally, there is increasing dependence on unvarying comparative advantages accruing from producing resource intensive goods. In view of the severe income inequalities, the economic crisis has the potential to cause immense damage to growth that was achieved in the past in terms of democratic systems of governance. Related with such important issues is the concern for reviewing international agreements (Berger, 2003).

It is important to note in this context that the UN Secretary General, Ban Ki Moon had held that it is imperative for the UN to demonstrate its universal role in enabling global public goods and services relative to economic growth, such as climate stability, food, health care and financial stability. According to Filho and Arvai (2007), reduction of inequalities requires moving towards a knowledge base that relies on an innovation and knowledge based society that focuses on providing equal and complete availability of quality education to all citizens. Achieving such objectives requires states to create a balance amongst citizens, markets and the state. It is important to examine in this context that the state needs to create an environment whereby financial institutions are created and reinvented, irrespective of whether they are private or public. These efforts have to be solidarity based or related to communities so that better forms of organizations are developed that can be evaluated for public governance in ensuring that there is transparency and accountability. States should accept that such institutional redesigning is relative to organizations at the global, national and local levels. Fundamental to these tasks is the need to construct fiscal covenants in terms of creating implicit or explicit political arrangements to compose and manage public funding and spending (Berger and Loretta, 1997).

Issues that need to be addressed

It is important for Caribbean nations to remain committed towards assisting and supporting each other by creating a broad spectrum of concepts of development so that economic growth can be sustained in all respects by adopting processes of combining enhanced training, technical cooperation and research. In order to achieve these tasks it is important to set up strong convening authorities at regional levels. The required political and analytical capabilities will represent specific significance in the context of the present economic environment that prevails at both regional and global levels. They will also be of immense value in the creation of effective consensus relative to important issues in the entire region. Some of the issues that need to be addressed in this regard are:

• Coordinating proposals for macroeconomic management by adopting counter cyclical policies
• Promoting and managing trade agreements on the basis of the concept of open regionalism
• Modernization of productive structures focused on the real economy, innovation and technology
• Revision of the role of the State, which is urgent and comprehensive.
• Coordinating efforts leading to better adaptation to climate change and mitigating its effects.

Despite the success of industrialization efforts in the Caribbean, the region continues to be characterized by certain setbacks such as inadequate global integration, repeated bottlenecks resulting from external pressures, meager and erratic growth, lack of employment opportunities, poverty and underemployment and an increasing gap in income and wealth levels amongst the peripheries and central areas. In the present circumstances, the messages that appear are quite relevant but instead of focusing on industrialization as the only means of technical change and economic growth, the new strategies preferred by the Caribbean nations is largely associated with the concepts linked to diversifying export diversification and production that adds value through innovations and strengthening and widening structures of production. The diagnostic structures adopted by the Caribbean countries convey the same concept that is strengthened by prospects of opportunity creation through different ways in achieving technological progress in varied sectors of productivity on the basis of specializing production structures by taking the scope beyond manufacturing activities.

If the Caribbean region fails to implement strategies of structural change, it will imply the entire region will continue to be in the grip of the financial crisis because of insufficient integration with the global economy. The region will also face enhanced complexities in holding out against other global competitors. It will also experience hurdles that may hinder growth, exacerbate the unemployment problem and create difficulty in dealing with issues of increasing inequality and poverty. Eventually there will be a marked deviation in terms of relationships and partnerships with developed countries. Although bank associations have already adopted a thinking pattern that is in keeping with a changing environment, the diagnostic elements used during the previous period will continue remaining relevant. The recent academic interpretations relative to global trade and economic growth is representative of a development in the examination and adoption of empirical knowledge to develop classical diagnostic structures. Therefore, the production of knowledge represents a broadening of conventional structures that have been adopted along with the present practices of globalization.

Till recently, the responses of Caribbean nations were focused upon improving credit positions and safeguarding against damages to their respective real economies. But it is known that in market economies there are lesser number of areas that can harm all sectors in the economy or bring the economy to a complete halt. The most crucial sectors in the Caribbean are communications, finance, transport and energy. The influence of crises situations and business cycles on real sectors of the economy has been analyzed repeatedly by way of collection of variables such as demand, employment and production output. But there is need to also consider micro economic impacts that effect economic growth. Therefore, it is required to reconsider the several institutions and regulations that control financial markets as well as policies in areas such as industrial diversification and technology, which is more vital for economies that are trying to catch up with others.

More particularly, all motives for favoring interventions in financial systems can be found in the current production systems. Adopting corrective policies to develop technological ability cannot be ignored during periods of financial crisis. In contrast, economists feel that such policies become more crucial during such periods. In finding remedies for the current economic situation in the Caribbean, it is credible for nations to adopt corrective policies that are focused on the real economy. The financial crisis has given a clear message that attempting systemic impacts on aggregate macro variables will not work because they lead to recomposing micro economic structures that further shape the responses towards the crisis by the given economy. During times of financial crisis companies and sectors have to make adjustments in adapting their capabilities by including procedures and investment and production planning. The productivity framework will have to be changed and restructured, which means that some human, technological and productive abilities may be destroyed.

Banks are known to play a very important role in allocating economic resources because they are the main players providing capital and thus stimulating economic growth. It is also established that gross domestic product and bank credit are strongly interrelated. It is true that the direction in which causality moves has been strongly debated in emerging economies in the context of their respective banking sectors. Some economies with large banking sector have the tendency to experience high levels of economic growth as compared to nations that have small banking sectors. But many countries have common circumstances by way of inherent weaknesses in the banking sector. This similarity in the Caribbean region is not because of the size of the gross domestic product or the economic size of the nation but because of the fact that many Caribbean countries have big off shore financial centers. In contrast, many of the bigger economies in Latin America have small banking sectors as compared to what is required in keeping with their respective levels of economic growth (Gaytán. et al. 2009).

Because of the introduction of new market structures, rules and products, there has been development and distribution of enhanced lending through economic sectors resulting in the creation of new market risks, liquidity and credit. A major issue in this regard is to consider whether financial institutions are better placed in coping with newly developed risks. It is evident that management of risks has improved in many of the sectors because of introducing new concepts of allocating credit and of establishing improved pricing and measurement of the given risks. Such improvement appears to have enhanced the strength of the banking sector in the region although weaknesses do exist in some sectors. The changes in the banking sector, particularly in regard to enhanced market oriented processes related to intermediation had created strong implications for central banks in terms of the varied channel transmission and their capability to deal with sudden non-policy developments. It is important to note that the transformations have been accompanied with a change away from direct market-based functioning. There is strong evidence of reduction in monetary controls, which is evident from the weak transmission mechanisms that characterize most Caribbean economies. But to arrive at concrete conclusions in this regard, it is imperative for the research to establish more decisive conclusions.

Technological and industrial frameworks are systemic to almost the same extent as finance because network and domino affects exist in real economies also. Tackiness in technology and production ability means that such impacts cannot be reversed easily in real economies as compared to financial markets. Capability adoption in production, technology and science will allow the region to re-emerge from the present crisis after which it can reposition itself in the international economy. If the current crisis is faced diligently, it implies thinking proactively about the future in terms of adopting constructive technology and industrial strategies. There is need to have an efficient policy mix that includes ways of avoiding damages to technology and production technology. This way, new incentives are created for adopting and accumulating new technologies.

Conclusion

It is true that the impacts of the financial crisis has in some ways helped Caribbean countries in moving towards better allocation of financial resources but they have also resulted in enhanced risks. As financial flows and interest rates become increasingly determined by the interaction of demand and supply, globally as well as domestically, the financial sector has become more open to market risks. Such issues are of particular significance for small economies because in having limited financial and economic diversification, the adversities can make the management of financial market volatilities more complex. Because of the introduction of new market structures, rules and products, there has been development and distribution of enhanced lending through economic sectors resulting in the creation of new market risks, liquidity and credit. A major issue in this regard is to consider whether financial institutions are better placed in coping with newly developed risks. It is evident that management of risks has improved in many of the sectors because of introducing new concepts of allocating credit and of establishing improved pricing and measurement of the given risks. These improvements have enhanced the strength of the banking sector in the region although weaknesses do exist in some sectors.

The basic issue that needs to be taken care of in the present circumstances is the manner in which links can be strengthened that have mostly proved to be elusive in the Caribbean in the context of economic development and the constructive role of the banking sector. It has to be understood that such dimensions have assumed utmost importance and need to be progressed in keeping with a focused objective towards creating more responsible roles for the sector. The Caribbean is expecting considerable slow down in economic development in the coming year whereby the rate of growth is unlikely to exceed two percent although there was steady growth during the last five years. Although initially, analysts believed that only those countries will be adversely impacted that have been increasingly associated with the global economy and financial markets; such as Colombia, Chile, Mexico, Brazil and Argentina, but now it is evident that the fallout will create repercussions in commodities markets across the entire Caribbean region. This means that the entire banking sector in the Caribbean region will have to adopt proactive measures to face the coming challenges. Countries such as Ecuador, Peru, Bolivia, Venezuela and Argentina will be strongly impacted with the impending developments because they are all net importers of commodities. Falling commodity prices will to some extent reduce the adversities relative to the impact of the financial crisis.

Banks in the region need to design coordinated actions in addressing the present economic environment, which means that complements will have to be sought amongst equity and economic growth. Other factors that need to be coordinated are social consistency, democratic development, environmental sustainability and competitiveness. These objectives could create conflicts for banks in generating several policy dilemmas but creative ways have to be found in achieving them concurrently in both the medium and long terms. It is thus evident that responses adopted by Caribbean nations towards the global recession entails ethical responsibilities in recognizing and strengthening the relationships amongst environmental, social and economic policies along with the development of the democratic process in the region. This is very important because in the current economic environment there is considerable uncertainty about the fiscal benefits of international integration and movements in the direction of regional as well as sub regional integration.

Recommendations

Caribbean nations need to make a review of their financial institutions in regard to their public disclosure standards. Banks need to enhance accessibility to information in order to evaluate whether its institutions are functioning in healthy ways. Clear guidance has to be provided about capital requirements and risk transfers to take care of off balance sheet parameters. Coordination and cross border sharing amongst regulatory bodies has to be initiated so that contingency plans can be established and virtual drills conducted to combat the crisis. Despite the resilience that has been demonstrated by the Caribbean banking sector so far, there are several challenges that have to be faced in warding off the impending adversities in the financial sector. Banks in the region have to have strong coordination amongst incomes, monetary and fiscal policy, which is crucial to consistently protect debt sustainability and support the most susceptible groups. Given that there will be another round of inflation; policies will have to be adopted to contain price and income movements.

Reflections

Research Objectives

The objectives of this research have been fulfilled in keeping with the research questions that were to be answered relative to the impact of the recent economic crisis in the Caribbean banking sector. The measures taken have been clearly outlined and their effect has been analyzed in the short and long term. The analysis was done on the basis of comparing the impact of the economic crisis between developed countries and the Caribbean nations and it emerged that although the developed world was the biggest sufferer, the Caribbean region did experience reduced productivity and increase in food and fuel prices. Because Caribbean nations are no match with the economic power of the developed world, it appeared initially that the recession could create strong repercussions in these economies. However, the banking sector in the region managed to survive the effects of the crisis because these small economies were not vulnerable to the crisis in view of their lesser involvement in financial instruments and mortgages that were the main reasons for the recession that started in the US. At the same time, the meager impact and adversities in the Caribbean appear to still hold the region in the grip of structural difficulties.

The banking sector in the Caribbean has been found to experience frequent boom and bust patterns and repeated crisis situations that further contributed to increasing economic fluctuations. These economies are much dependent on the dollar that resulted in enhancing fluctuations in their exchange rates. The research has found that nations in the region have demonstrated high resilience and efficiency by developing strong internal capital markets. Caribbean nations privatized many government undertakings and adopted deregulation in allowing more foreign banks to enter their respective economies.

Strengths

Given that the economic crisis impacted social groups very strongly, the methodology adopted in this research was a major strength in arriving at concrete conclusions in relation to the research questions. The researcher was able to effectively evaluate the impact on people and the measures taken by the governments in the region. In view of the importance of the topic, a wide variety of literature was available through different sources. This secondary data was obtained from journals, text books, libraries and internet sources. There were sufficient means available to vet the sources for accuracy and relevance. The triangulation approach of interviews, surveys and document search used for this research allowed a wider scope to be covered for the study. The research was able to enlist the participation of financial institutions from all Caribbean countries, which enabled a thorough analysis of the financial practices and structures of the banking sector.

Weaknesses

Because most of the financial institutions were operating from different locations and countries it was very difficult and time consuming to comply with legal and regulatory procedures. Some regulatory procedures could not be examined in detail because timely permission was not granted to examine government records, which obviously impacted the research. There is a great deal of knowledge and risk diversification amongst commercial banks in different nations in the region, which deterred the researcher from formulating a uniform method to arrive at conclusions relative to the impact of the recession. In some countries in the Caribbean there is extreme lack of infrastructure for developing the securities market, which again resulted in the lack of proper and complete information in terms of data and statistics. The banking sector in the Caribbean continues to be shallow because of which this researcher was not welcome in every institution and authorities were reluctant to cooperate in providing the required information. However these difficulties were overcome by arriving at a balanced approach of sampling whereby opinion was sought from respondents in the survey.

The accuracy and consistency of data could not be taken for granted because they could not be verified. Countries in the region were found to be using different definitions for different variables, which meant that it was not possible to determine whether the descriptions and definitions have changed over time. Moreover, in the context of daily stock market indices it became difficult to ascertain if any volatility was present as many states did not provide information in this regard.

What could have been done differently?

The research outcomes could have been more concrete and exhaustive if there was strong cross border collaboration amongst banks. Had the research been given more time, efforts could have been made to physically visit different institutions to ascertain the reasons for lack of cross border collaborations, which would have allowed the research to ascertain the reasons for difficulties faced by the banking sector in the region. With this relaxation, financial institutions in the region could have been adequately monitored in terms of performance over a given time period. This would also have done away with the adverse impact on the research because of political interference during the time of the research. In the absence of political interference it becomes possible for bank personnel as well as the researcher to interact and share information, which helps the study to arrive at better and more concrete conclusions on the basis of exhaustive data and information. It was found that many bank personnel were not opening up with the researcher for fear of political repercussions in terms of being asked as to why they divulged sensitive information. The outcome of this research may have been different if all countries in the region had adopted similar measures for protecting themselves from recessionary pressures but this is a remote possibility because every country frames its own economic policies in keeping with its social and political environment.

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List of Tables

1. Table I: Analysis of Caribbean Banking Sector
2. Table II: Profitability of Commercial Banks by Size during 2008 and 2009
3. Table III: Profitability of Banks by Ownership during 2008 and 2009
4. Table IV: Public and publicly guaranteed (PPG) debt (% GDP)

Appendix

Letter mailed to respondents

Dear Respondent,

I take this opportunity to invite you to take part in this research survey concerning the impact of the global crisis on the banking sector in the Caribbean region. We have chosen to request you to take part in this survey in view of your association with and experience relative to the banking sector in the Caribbean region. The main objective of this survey is to investigate the impacts of the recent economic crisis and the measures that were taken to save the banking industry in the Caribbean region. The researcher considers your participation in the survey will be very helpful in coming up with concrete conclusions, which will pave the way for creating a realistic framework to improve the performance of the banking sector in the Caribbean region. You have to only consider the questions provided in the questionnaire and give your personal information and respond to the questions in terms of the scale from 1 to 5 whereby:

1. Strongly Agree
2. Tend to Agree
3. Neither Agree nor Disagree
4. Tend to Disagree
5. Strongly Disagree

We wish to inform that your participation in this survey will be kept in strict confidence and your personal details and the information provided by you will not be passed on to any third party. This survey is entirely for the purpose of this research.

Thanking you