Dear Editor,
Commercial banks stand as one of the cornerstones of the economic and social progress of societies. While the list of services they provide has grown over the years, their primary activity, serving as financial intermediaries between savers and borrowers, probably remains the most transformational. This basic function is, however, underpinned by the assumption that commercial banks operate under a regulated framework which essentially realises a “highly competitive environment”, a description used by the Bank of Guyana.
But responding more directly to the question of how to increase competition in the banking sector, it is easy to identify very probably the biggest culprit stymying the entrance of new (indigenous, at the very least) banks much needed to break the virtual cartel control of existing commercial banks on savings and lending rates: existing capital requirements for new commercial banks in the Financial Institution Act (1995) (6) established at a minimum of $250,000,000 (two hundred and fifty million Guyana dollars).
While there is no question of intention of the FIA to safeguard the welfare of society with this level of financial requirement for aspiring new commercial banks, times have changed, financial technology safeguards have improved enough to consider the applicability of such a sum of money as a requirement for opening a new commercial bank.
The idea I am proposing is consideration of available research on commercial bank theory, models, and particularly relevant to Guyana’s case – scalability. My suggestion is for the Bank of Guyana to open available research on the scalability of commercial banking with a view to introducing a multi-tiered system for licensing new commercial banks with a new, financially sound, lower capital requirement established to accommodate smaller commercial banks not only in Georgetown but all around the country.
After 26 years of service, now is an appropriate time as any to re-examine commercial banking regulations and requirements in Guyana. Because the current one provided little in the way of financial efficiency and a “highly competitive environment” for Guyana’s commercial banks, not to mention the massive welfare transfers from consumers to commercial banks in the form of profits. This should undoubtedly bode well for greater financial intermediation, increased competition, lower borrowing/investment costs, increased consumer welfare, and a significant shifting outward of Guyana’s production and employment prospects.
Sincerely,
Craig Sylvester
