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Governor: ‘No Persuasive Case’ Price Controls Work

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor yesterday said “a persuasive case” cannot be made that price controls work properly, as he reiterated his stance against their imposition on bank fees.

John Rolle, addressing the Rotary Club of south-east Nassau, warned that placing price controls on commercial bank fees “is not an outcome” the Bahamas should seek, as it will not protect consumers.

Rather than impose such restrictions, he said competition was critical to keeping bank fees in check, adding that price controls will “not accomplish much” unless the underlying structural issues and costs relating to the provision of financial services in the Bahamas are addressed.

Responding to complaints from Rotarians that banks are providing “less service for more cost”, the Governor replied: “These fees are not regulated in the Bahamas in terms of their level.

“It [price controls] is not something we should want to see as an outcome. The issue here is being able to have a choice, to have a more competitive environment to exercise choice when necessary.”

He added: “There are some elements of a consumer protection framework in the Bahamas, but a lot of it is built around price controls on fuel, food and a few other areas.

“In this area, we cannot argue persuasively that these controls accomplish as much as we would like.”

Price controls were first imposed in the Bahamas in 1971 by the then-Pindling administration, on the grounds they would ensure essential food-stuffs and other commodities remained affordable for lower income Bahamians.

These measures were also sold as protecting consumers from ‘price gouging’ by unscrupulous merchants, but - as with many government policies - their imposition brought unintended consequences.

Many price-controlled items have to be sold by businesses as ‘loss leaders’, and the limited margins/profits that can be earned deter product availability and supply. Merchants are also forced to increase prices on non-price controlled items higher than they would like to compensate.

“The Central Bank doesn’t determine the level of fees set by the banks,” Mr Rolle reiterated yesterday, “but we don’t think price control of fees will accomplish much of we don’t address the structural issues that feed into the costs of providing financial services.”

The Central Bank and its governor have consistently argued against price-controlling bank fees since early 2017, despite increases as high as 43 per cent on “a significant number of services”.

The regulator, unveiling its survey of commercial bank charges for the six months to end-June 2016, said then that direct intervention through mechanisms such as price controls would only create further distortions that negatively impact consumers.

The survey argued that improved consumer protection and financial literacy were the best safeguards to concerns over increased bank fees, and Mr Rolle yesterday detailed the Central Bank’s plans for progressing these two areas.

However, the Central Bank’s declining of price controls is unlikely to be welcomed by many Bahamians, who believe commercial banks have imposed disproportionate and unwarranted new fees and increases in a bid to regain some of the profitability lost due to the sector’s $1 billion-plus pile of non-performing loans.

And the Central Bank’s stance appears to be at odds with the Government, which yesterday issued a release identifying bank fees as a particular concern requiring the attention of its Price Commission and Consumer Protection Commission.

The statement, issued in the name of Dion Foulkes, minister of labour, quoted him as saying there were “some serious issues concerning consumer affairs in the country” that have to be “readily addressed” by the two regulators.

The statement added: “Among these concerns, he noted, were the newly-introduced charges by some banks on various banking transactions along with other vexing consumer issues.”

Mr Rolle yesterday said the Banks and Trust Companies Regulation Act, the law that governs the commercial banking industry, requires institutions to give Bahamians advance warning of fee changes.

“There’s at least a minimum requirement that the institution has to give notice to customers when these fees are changed,” he said, adding that the Clearing Banks Association’s (CBA) ‘code of conduct’ required similar transparency.

“As the Central Bank, we intend to strengthen public awareness in what consumers should be expecting in all these areas relating to the disclosure of fees,” Mr Rolle added.

The Governor said passage of the long-awaited legislation to create the Bahamas’ first Credit Bureau could also assist in keeping banking fees in check.

The Credit Bureau, which will pool information on borrower histories from a variety of sources, is widely seen as a mechanism that will enable Bahamas-based commercial banks to better allocate credit, and assess and price risk.

Banks will have better, faster information to determine whether they will lend to a particular borrower at all. They will also be able to divide borrowers into ‘low and ‘high’ risk categories, providing lower interest rates to the former and higher ones to the latter.

Mr Rolle yesterday suggested that the better lending decisions enabled by the Credit Bureau will help commercial banks to avoid a repeat of the $1.2 billion non-performing loan pile that built up following the 2008-2009 recession.

And, as a consequence, the commercial banks will not have to charge higher fees to compensate for the non-performing loans and lower returns on their credit portfolio.

“The pressure to make up for loan losses with higher interest rates and fees would subside,” Mr Rolle suggested.

The Minnis administration referred to the Credit Bureau legislation in the ‘Speech from the Throne’, and the enabling Bill has been drafted and is now waiting to find its way on to the Government’s legislative agenda.

“The Government has indicated that the credit bureau legislation is still high priority”, Mr Rolle said. “We look forward to further action in the very near term, and the industry is looking forward expectantly to having that legislation in place. We continue to say that it needs to happen in the shortest time possible.”

The Governor added that the better lending decisions facilitated by a Credit Bureau will also assist the Bahamas in its efforts to avoid further credit rating downgrades by Moody’s and Standard & Poor’s (S&P).

Comments

Well_mudda_take_sic 1 year, 2 months ago

Rather than impose such restrictions, he said competition was critical to keeping bank fees in check....

John Rolle is nothing but a two-faced liar. He knows full well that those banks that have not transformed themselves into consumer lending businesses and steered away from the traditional mortgage lending activities cannot possibly compete with the low-cost mortgage lending and other investment activities of the corrupt numbers' bosses who own the gaming web shops. Most of the construction activity in the Bahamas today is being financed by the racketeering numbers' bosses in their eagerness to launder as much of their tainted cash as they possibly can. The thugs like Sebas Bastian and Craig Flowers are under-pricing their lending and other investment activities to such an extent that the legitimate banks (especially the Canadian banks) are having great difficulty originating new profitable mortgage loans, whether they be residential or commercial loans. This is wreaking havoc on our economy and banking system, to the point where the Canadian banks would simply pack up and leave our shores if the Central Bank now tried to impose restrictions of any kind on their fee structures. John Rolle knows all of this, but the incompetent wimp (like our new PM) seems to be beholden to the numbers' bosses!

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banker 1 year, 2 months ago

You have nailed it on many points.

Rolle doesn't want to p*ss off the Canadian banks because it would destroy the economy if they left -- which they want to do anyway. RBC is the most motivated to leave, and they are the government's banker.

Rolle has never been an independent governor of the Central Bank. He is not as bad as Wendy Craigg who would rollover everytime Crisco Butt flatulated. I would have liked to seen Rolle come out swinging against the web shops. As a supposed banker, he should know that web money violates all principles of fiduciary trust, AML/KYC and ethics. The ironic bit is that Rolle has policies that impose harsher AML/KYC stipulations on ordinary Bahamians than on the criminals that actually operate in the web shops.

As it is, we are already in a precarious position, facing a withdrawal of Chinese money, and the inability to bank effectively due to de-risking and lack of correspondent banking choice.

The banking sector (with perhaps the exception of Fidelity) is on life support in The Bahamas, and nobody seems to give a crap. Strategically the high banking fees are present because of the need of the banks to maximise their eroding profits.

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Socrates 1 year, 2 months ago

there is ample competition in the local banking industry but clearly we consumers are not seeing the benefits suggesting collusion between the banks to set fees. Therefore we need gov't oversight including laws to prevent anti-competitive behaviour.

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Porcupine 1 year, 2 months ago

Mr. Rolle is a good example of how one can become conversant in a mythical reality such as banking. Banking has always been assumed to further economic growth and investment. Banking in today's world had become parasitic to all economies and the world's people. They have become the risk takers in their pursuit of inordinate profits. Bankers have become the slave masters. Banking should be seen for what it has become. A tool of the rich to take ever more for themselves. Bank of the Bahamas has utterly failed the people of The Bahamas. Mr. Rolle has helped enable this situation to occur.

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banker 1 year, 2 months ago

That is why the fintech revolution is going on in the world. To disrupt banking. As an insider, I can see the need for it.

In the old days, with loans for operating capital and assets, banks created wealth for people. Now they are in the business of creating wealth for themselves.

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dfitzerl 1 year, 2 months ago

Rolle would be correct if consumers had freedom to transfer accounts, mortgages, etc from provider to provider without penalty. You can't have freedom only on one side of a market and have it succeed.

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baldbeardedbahamian 1 year, 2 months ago

On a personable level I do not particularly like John Rolle, as the saying goes "he is all mouth and no trousers.", A man who has never worked in he private sector but instead has had a bureaucratic career insulated from real life carried in the bosom of the state apparatus. He has absolutely no professional qualifications or prior career posts that make him suitable for his present position. Having said all that, I agree with his statement, that price controls do not work. The invisible hand of the market ensure that like a balloon, if you squeeze here then it will bulge there. High banking fees are due to the extra taxes that the corrupt Christie led government imposed on the retail banking sector, the cost of complying with KYC, the cost of collecting and paying VAT and NIB contributions, the excessively protectionist labour regulations, and lastly the propensity of many in our country to pay back loans or mortgages only very reluctantly.

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