Financial Interconnectedness and Financial Sector Reforms in the Caribbean

Abstract

Financial sector linkages have increased continuously in the Caribbean with cross bordercapital flows and financial conglomerates dominating the financial system. While thegreater interconnectedness can heighten systemic risks and likelihood of contagion, it canhave positive impacts provided the regional authorities take steps to prevent the systemicrisk. In this context, financial sector reform measures aimed at bolstering and harmonizingprudential regulations in line with international best practices, the strengthening andenhancement of financial sector supervision to include cross border linkages throughconsolidated supervision, increased cooperation across supervisors in the region, and theestablishment of deposit insurance and crisis resolution frameworks will be critical tomaintain financial sector stability and minimize the repercussions of any negative shocks.