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A new Bermuda Free Banking Zone?

The following is a contribution by Mark Cooke, of Comp Capital Ltd, received by “Regeneration of Bermuda’s Economy”. We will be featuring some of the submissions provided by members of the public during the course of this series.

Overcoming one economic crisis after another can be a daunting task for the everyday citizen. As unemployment rates continue to rise, coupled with spiked increases for cost of living, financial comfort has been a struggle for families all over the world. Surmounting the current economic strains, this should be a focal point for our Government, and, with the creation of a new banking law to contribute to the jump-start of our economy in a much needed way.

Following the failure of many elite financial institutions in the 2008 worldwide crisis, regulators concluded the downfall was largely based on banks excessively high leverage rates compared to “actual” holding capital. This prompted a re-examination of sufficient banking capital needed to cover economic deficiencies. Under new Basel 3 requirements, banks will be held to higher capital standards to ensure safer and more effective lending across the board.

Currently, Bermuda’s banking system consists of four key elements: Bank of Bermuda/HSBC, Capital G, Bermuda Commercial Bank and Bank of Butterfield. Over recent months these banks have produced exemplary lending statistics, significantly increasing from numbers of the past. Bermuda Commercial Bank in particular has proven to be the benchmark contender due to its standing as the only monoline Bermuda based Commercial Bank, its solid recent results and growth, providing foundational merchant banking services outside of the chief insurance and reinsurance sectors on the Island. Mono-line deals specifically with one particular branch of the financial industry. It chooses one product to focus on, such as credit cards or a particular kind of loan, and then it can become very specialised in all the aspects of that particular service.

Investment Banks are the ideal solutions for Bermuda to target, creating meaningful financial relationships with branches outside of the impact zone, thereby absorbing and withstanding possible financial crisis much easier. Although a capital conservation buffer of 2.5% is a new requirement for banks in Basel 3, building alliances with other lenders offers an even stronger foundation that simply cannot be ignored. From hard hitting crisis that have sent our economy reeling, to newly imposed banking laws that have yet to be fully tried and tested, capitalising on a new market of both opportunity and security should be of the highest priority.

Stricter guidelines in the new Basel 3 prevent banks from lending once a minimum capital ratio has been depleted, meaning for non-existent banking with any organisation unprepared to withstand economic fluctuation. Offshore banking solutions provide local Bermuda banks with more comfort during times of crisis, along with significant increases in international transactions and other non-banking financial transactions, thereby offering stimulus to the economy.

Basel 3 has been established to lower the risk of future financial disasters due to over-lending, while investment banking simply solidifies the approach by extending greater reach into a thriving market of non-banking transactions.

Utilising the services of investment banks offer significant increases in business for local Bermuda Banks, similar to the infrastructure currently implemented by the Cayman Islands, only in a more conservative manner.

The introduction of a boutique banking system in Bermuda will complement local banking transactions, generating meaningful and long lasting relationships with a wider base of potential clients. This system also enforces a more integrated approach to banking, creating greater involvement of banking services in larger derivative industries where capacity and structure are the “key elements” to successful transactions. Mono-line banking infrastructures offer a limited reach and influence to the much needed areas outside standard banking transactions, making it imperative for Bermuda to implement Boutique merchant banking into the regimen, a strong and viable solution for expanding our current reach.

While Bermuda steadily downsizes in service-based industries because of a struggling economy, a much needed solution for increasing employment opportunities and generating revenue should be established. Offering the ability to introduce an entirely new industry into Bermuda, boutique investment banking capitalises on the much needed areas Bermuda currently lacks. New employment for skilled out-of-work citizens can increase many fold, coupled with spiked revenue from licensing fees and payroll taxes that are introduced by investment banking.

Looking into the future, endless possibilities arise when a boutique banking system is placed into effect. Investment banks provide access to a new “untapped” market for Bermuda, a market that has the potential of generating millions in annual revenue. Forming alliances with offshore merchant boutiques creates greater opportunities for employment, stability, and overall revenue into our faltering economy. These are all factors that must be taken seriously.

Sir John Swan and Larry Burchall, of Regeneration of Bermuda’s Economy, wish to thank Mr Cooke for his submission and look forward to receiving more contributions from the public. Get involved and send us your thoughts. This continues to be a collective effort by all Bermudians and we need your continued support, comments and ideas. For further information or to express your comments e-mail us at economy[AT]challengerbanks.bm or visit us on Facebook at Regeneration of Bermuda’s Economy.

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Published November 25, 2011 at 1:00 am (Updated November 25, 2011 at 6:26 am)

A new Bermuda Free Banking Zone?

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