Finance Minister Says Financial Institutions Safe

Minister of Finance and the Public Service, Audley Shaw, is assuring that domestic financial institutions in Jamaica have suffered minimal setbacks from their relationships with foreign institutions, despite the financial crisis in the United States of America (USA).
“A survey of the exposure of commercial banks, other deposit taking institutions, securities dealers, insurance companies and pension funds, show that the overwhelming share of their foreign assets, consists of Government of Jamaica bonds, the integrity of which is not in question,” Mr. Shaw said.
The Finance Minister was speaking yesterday (September 30), in a statement to the House of Representatives, on the crisis that the United States Capital Market is now facing.
“Depositors, policyholders and pensioners can rest assured that our financial system remains well capitalised, well supervised and has the strong backing of the Central Bank and the Government,” Mr. Shaw declared.
“I should also indicate that, in terms of additional challenges that may arise in raising capital on the international capital markets, this is being supplemented by the Government’s proactive agenda in re-engaging with multilateral institutions on an aggressive basis over the past year, and is now beginning to see the finalisation of significant access to project and policy-based loans from the World Bank, Inter-American Development Bank (IDB) and the Caribbean Development Bank (CDB), at attractive interest rates,” he pointed out.
He also noted that the potential need for US dollar liquidity by institutions over the next few months, was only a small portion of the current Net International Reserves (NIR) of US$2.2 billion.
“Ultimately, the issue of exposure comes down to the need for liquidity to settle maturing obligations. In this regard, the Net International Reserves, of the Bank of Jamaica, represent Jamaica’s store of US dollar liquidity,” Mr Shaw said.
The Minister also explained that the crisis that the US Capital Market is facing, is the result of financial institutions heavily issuing mortgaged-backed securities, particularly in the form of collateralised debt obligations (CDOs), which were repackaged, rated triple A and sold to investors.
“As home owners defaulted on the underlying mortgages that comprise the CDOs, the balance sheets of the investment banks were undermined. Instead of receiving the expected income stream from mortgages, those institutions are essentially left holding homes which were foreclosed and often have zero or negative equity (value of house is less than the mortgage),” Mr Shaw added.