Bank of Guyana Amendment Bill to aid in liquidity, financial crises ─ “The aim is ensuring stability” – Min. Jordan
DPI, GUYANA, Friday, July 13, 2018
The Bank of Guyana Amendment Bill passed in the National Assembly this evening will see the Bank of Guyana (BOG) providing temporary liquidity assistance to deposits to ensure the stability of the financial system.
Minister of Finance, Winston Jordan said this is to prevent the failure of commercial banks and to provide them with the mechanism and processes to bring about corrective actions in the event of failure.
Minister of Finance, Winston Jordan
The bill seeks to amend the Bank of Guyana Act Chapter 85:02. The intent of the amendment is to modify sections 40, 41, 42 and 46 of the principal act.
“Like the three previous bills (National Payments System, Insurance Amendment and Financial Institutions Amendment Bills) this bill is brought to the National Assembly to adopt an emergency liquidity assistance policy and procedures to ensure prompt temporary infusions of liquidity to illiquid banks while at BOG’s facilities,” Minister Jordan explained.
According to the minister, key actions should include clearly assigning the facility to be used for emergency liquidity assistance, setting the eligibility conditions, clarifying the terms and conditions for the facilities used, particularly on collateral requirements and introducing systems for enabling prompt acceptance, valuation and management of collateral.
The system should be used exclusively in structured or regularised situations and only under strict perimeters.
Minister Jordan stated that BOG should be guided in all its actions by the aim to foster domestic price stability through the promotion of stable credit and exchange conditions as well as sound financial intermediation conducive to the growth of the economy and Guyana.
“Like central banks in other jurisdictions BOG acts as a provider of liquidity to the financial system. This ‘lender of last resort’ function has been a fundamental one at BOG since the 19th century. The aim is to prevent or mitigate financial instability by providing instability by providing liquidity support,” Minister Jordan explained.
Rising to add his contribution to his colleague, Minister of Foreign Affairs, Carl Greenidge emphasised that bill deals with liquidity control, which is an important one. Minister Greenidge said the possibility exists for a company to become “illiquid” but this Bill seeks to avoid a collapse of the business.
“The aim is ensuring stability; what the bill attempts to do is widen the role of activity at the Central Bank with regard to open market the facilities made available to banks. The monetary operation at central bank can be widened,” Minister Jordan said.
By: Ranetta La Fleur
Editor’s Note: Illiquid describes an asset or security that cannot be sold quickly due to a shortage of interested buyers or a lack of an established trading market. Illiquid assets cannot be easily converted into cash without potential for losing a significant percentage of their value