Central Bank of Bahamas Sets Out Legislation for Crisis Management

The Banks and Trust Companies Regulation Act 2020, modernizes the resolution framework for banks in The Bahamas, in line with best international practices. This Act gives the Central Bank of Bahamas enhanced powers to resolve troubled banks. Section 36 of the Act authorizes the Central Bank to require banks to prepare recovery plans detailing what steps they would take in the event of a financial distress or failure. The Central Bank of Bahamas has also been empowered to prepare its own resolution plan, in consultation with a bank, to identify options for the use of its resolution powers and tools and to direct a bank to remove significant impediments to resolution. This Act also includes provisions related to statutory administration and liquidation of banks. Additionally, certain new provisions prohibit the voluntary liquidation of a bank without the pre-approval of the Central Bank of Bahamas and outline the circumstances in which the Central Bank may appoint a liquidator for the compulsory winding up of a bank.

The Central Bank of The Bahamas Act 2020 is a critical piece of legislation as it governs all financial institutions supervised by Central Bank of Bahamas. The Central Bank of The Bahamas Act 2000 has been repealed and replaced by the Central Bank of The Bahamas Act, 2020. The Act has brought about the following imperative changes

• Financial Management Crisis Framework—It includes a new function for the Central Bank of Bahamas, to act as the sole Resolution Authority for troubled banks. Other functions include the promotion of financial stability, the issuance and management of the currency of The Bahamas, and actions as the fiscal agent of the government and of any public corporation of The Bahamas.
• Domestic Payments System—The Act establishes that digital currency issued by the Central Bank of Bahamas is legal tender. The Act also makes it an offence for a person to counterfeit digital currency or to reproduce digital currency without the permission of Central Bank of Bahamas. Further, participation in payment settlements processes has been extended to non-banks (credit unions and payments services firms), through settlement accounts maintained at Central Bank of Bahamas.
• Financial Autonomy and Credit to the Government—The Act introduces provisions that provide greater operational flexibility to the Central Bank of Bahamas in conducting its investment activities and improve governance arrangements between the Central Bank of Bahamas and the government. The Act clarifies the legal framework for establishing and using reserves. The Central Bank of Bahamas has also been mandated to establish a General Reserve to cover losses sustained by the Central Bank of Bahamas, along with an Unrealized Revaluation Reserve to account for unrealized gains and losses arising from the positions of Central Bank of Bahamas in foreign currencies, gold securities, and other financial assets.

Keywords: Americas, Bahamas, Banking, Crisis Management, Resolution Framework, Digital Currency, Governance, Crisis Management Framework, Central Bank of Bahamas