ALTHOUGH there is no direct contagion effect coming out of an emerging banking crisis which resulted in three US banks failing, the Central Bank is still being cautious noting that there could still be spillover effects that could affect Trinis locally and abroad, and regulatory and policy changes that could have repercussions on emerging nations such as TT.
Responding to questions from Newsday, a source at the Central Bank said the financial system in TT was basically sound and resilient.
'At the same time we are not immune to a greater concern globally about how all banks manage risk,' the source said. 'Notwithstanding the strength and resilience of the domestic financial system there is need for constant vigilance.
'The situation with respect to the failed banks is fast-moving and uncertain, exacerbated by the jitteriness of investors in recent years. As a result, what started as problems in one or two banks threatens to spill over to other institutions.'
The source said TT's Financial Stability Committee, comprising of representatives of the Securities and Exchange Commission, Deposit Insurance Corporation and Central Bank, held a meeting on Tuesday to assess developments coming out of the banking crisis in the US.
'The spillover to other economies may also be considerable, in light of the size of the US and how integrated financial markets are,' Central Bank source warned.
The US Fed's concentration on taming inflation could, in the short term, affect American employment and growth, the source added. This means that all employees including migrants from other countries such as TT could face a squeeze on their general standard of living, and could affect their abilities to send money back home to their families.
Given the fact that one of the failed banks - Silicon Valley Bank (SVB) - had a high exposure to the tech sector, TT's Central Bank expressed concern over the possibility that new policies could be put in place to tighten global regulatory standards related to concentration risk, which increases when banks invest too heavily in one sector, entity or geographic location.
The source pointed out that TT uses these standards set by US financial regulators to benchmark its own regulations.
'The US Fed has already increased interest rates meaningfully and there is general consensus that they will raise rates further.
'Banks around the world have already adapted, and planned for future rises. If interest rates go up much faster than anticipated, however, banks will need to quickly modify their strategies to avoid undue risk or losses.'
The source also warned that if the US did end up going into recession, global financial markets could become unstable, thereby affecting several aspects of international trade and financial flows, including demand for TT exports and incoming investments.
Why did SVB fail?
Silicon Valley Bank's failure was the second largest bank failure in US' history, next to Washington Mutual's failure during the 2008 financial crisis. It was one of t
