(Trinidad Guardian) Outgoing Central Bank Governor, Ewart Williams, on Friday described what transpired at Clico before the insurance company collapsed in January 2009 as a “massive fraud on the public” and he admitted that he has “lost sleep” over the issue. Williams was questioned on the Clico issue in his last scheduled interview with newspaper reporters on Friday as he comes to the end of a second five-year term next week.
He said that because the Clico collapse was the subject of a Commission of Enquiry (headed by Sir Anthony Colman, which resumes on Monday) and was the subject of a “whole range of litigation,” he needed to be very cautious in his comments. He said that the Central Bank had taken action to charge certain players with fraud on the public.
He said that that action made it clear where, in the view of the Central Bank, the fault lines for Clico lay. “Clearly from this action, we are taking the position that Clico was a massive fraud on the public and that is our position,” Williams said. The Central Bank Governor said that the collapse of Clico pointed to the need to tighten the regulatory infrastructure at all stages—from the legislation to the regulatory practices.
“We are now in the process of addressing the various stages. We have done some work on the legislation and we have done considerable work on improving the supervisory practices.” Williams said he “lost sleep” over the collapse of the insurance company, because it did not place the Central Bank in a good light and it led to people losing money.
Williams said: “Whenever any regulator presides over a situation where there is a disruption in financial stability and where depositors and policyholders lose their savings and have reason to question the stability of the system, the regulator must be concerned. “I am sure that all of the members of my regulatory staff have lost a lot of sleep on this.”
Asked whether a government in the future should take taxpayers’ funds and bail out a financial institution which fails, Williams said that if the failure of the financial institution has systemic consequences, then it should be saved by the government. “It is an easy decision to allow the shareholders of the financial institution to take the bounce if they alone lose their stake. It is not so easy if the failure of the bank has systemic consequences.
“If the failure of the bank affects other financial institutions or large numbers of customers or can lead to ripple effects that are economy wide, there are very few countries that would stick to the orthodoxy and say let the banks fail.” Williams said that because of its ownership of a significant number of shares in the country’s largest commercial bank and because it was the repository of a large amount of pension funds, Clico was too big to fail.
