Warning for Caribbean countries

WASHINGTON, CMC – Caribbean countries have been warned that while increased financial integration has facilitated the flow of funds and allowed regional countries to overcome scale constraints, the increased interconnectedness has also built systemic risks and increased the likelihood of contagion. An International Monetary Fund (IMF) Working Paper examining the “Financial Interconnectedness and Financial Sector Reforms in the Caribbean” notes that financial sector linkages have increased continuously in the Caribbean with cross border capital flows and financial conglomerates dominating the financial system. The paper said this has occurred largely through foreign banks’ dominant presence, mainly by Canadian banks, and foreign participation in insurance markets and pension funds, securities trading abroad and direct borrowing of domestic firms in international markets.