Let us clear the air here of my qualifications. I have none! But I think I understand the problems of domestic banking slightly more than the politicians and bureaucrats in Belmopan. While my numbers may be wildly off, if we ignore that part and stick to concepts and principals of domestic banking, we might come to some new conclusions in Belize for remedial legislation, by those who are paid to investigate and research such things.
Basically, the Belize Government has always used the European style of banking. This is one Brand Name bank, with one incorporation and one set of capitalization. Under this system, one bank brand name can come into Belize, plunk down the $2 million or so required for capitalization and open as many banks as it wants, as branch banks.
Under the USA system, each and every bank must be incorporated and capitalized separately. No matter how many branch banks exist, each must be independent in company liablility and as to capitalization. The laws of ratios on loans versus deposits from savings are the same for each and every individual bank. If there is any benefit to Bank Brand Name specifics, it is in same software for computers, same practices and training, by a holding company and so on. But each branch bank is a seperate legal entity.
The failures around the world in financial markets and banking can always be traced back to the European style banking system, wherein one brand name bank pays the capitalization and then opens dozens and often hundreds of bank branches under that same capitalization around the country it is in. When the banks in Japan failed, or South East Asia, or Ecuador, or Argentina. It was always the same story. The European style banking system was at fault. The losses pyramid under a chain store style banking system with only one bank liable and having the correct capitalization. The accumulation of widespread losses in a main bank and some branch banks, bankrupts those chain banks in total when financal disaster strikes.
Under the USA system, if a hurricane was to hit Belize and wipe out Orange Walk, Corozal and Belize City, only those banks in those cities would go under. The same brand name banks in the south would continue to function, because their capitalization and liablility was limited to solely their village, or town bank.
But you say, if we required every bank to incorporate separately, and each one to have $2 million in capitalization, we would have no village and town branch banks! You are quite correct when you blindly suppose one level of capitalization is required. This is where the Government of Belize has consistantly gone wrong, or neglected the lending bank services to the rural populations of Belize.
Obviously, the answer is to have legislation that requires each bank to incorporate and also to have adequate capitalization in the village or town which it will serve. If that village is going to have only a $35,000 monthly banking cash flow. Then capitalization should be based on this and perhaps the legislation should read only $50,000 would be required for establishment of a bank in Ladyville, or Benque Viejo. You also govern the loan to deposits by a ratio style formula. Perhaps, a bank can only loan out 65% of it's deposits?
The complaint for decades out of Belmopan government has been that there has not been enough banks, nor competition, nor loan availability to citizens. This has been Belize government created! The reason is, that the only experience in Belize with banking has been those people who have worked under the foreign EUROPEAN style banking system. There have been no Belizeans who have had experience working under the USA system. Such legal banking advice that Belmopan has always sought, has always been European. Obviously, the politicians in Belmopan short changed the country in the process. The lack of small locally owned domestic banks and lending availability were Belmopan legislation created, because they only knew the European style method of banking.
Banking in Belize is a rip off business! You make more money as a foreign bank with a captive slave market, than any South Side youth with a revolver can make in drugs, or robbing Chinese Stores.
A recent Reporter article pointed out, that Interest on Savings is around 5%. Normally, in a USA competitive banking market, that would mean loan interest rates would be about 8% to 10%. In Belize, the article in the Reporter pointed out that the advertised rate is 13% for loans, but that the interest rates were collected and calculated differently from Savings Interest. So in effect, what we saw was a simple interest of 5% on savings deposits, but a collectable interest through other machinations of the advertised rate, that actually in practice ran from 22% to 34%, depending on the lender bank. This is robbery without a gun. If you borrowed $20,000 under this usury system to build an extension on a house, you would find that after two years, as you paid back what you thought was the last installment of a $20,000 loan and you wondered how much was left in interest to pay? You would get the shock of your life to find out, that you still owed $22,000, more than the original loan two years ago. Because of interest and the way it is calculated. I've seen it happen to friends. The way interest is calculated and fees and service charges and additions, amounts to usury, or robbery without a gun, unless legislated.
One wag on the Belize Culture List, quoted a farmer who was a member of the Cane Farmers Association who was told to borrow by his association, a loan to fertilize his cane fields. As part of the package, he also had to pay for Gramaxone, which he did not want. It took that farmer five years to pay off, only one season's fertilizer packaged loan from a bank, recommended by his Association. I'm surprised he was able to do it in five years. Such usury, is robbery. It is legal robbery, because the legislation does not exist to protect the citizen consumer in Belize. The politicians do not understand banking! They have made no attempt to understand banking and take European Banking advice, even though it is wrong, because they were too lazy to study the matter. I forget the name of the bank in England that failed last year, in which the Queen had all her money. But a single trader in Singapore in a branch bank operation caused the failure by multiplying losing contracts in futures. This shows you the fault of the UK system of banking. The English bank whole operation failed worldwide, because of one young man who committed that bank to a couple of billion dollars in trade losses in a farway bank operation in Singapore. Worldwide all the banks for that bank failed and went bankrupt.
To encourage local domestic banking, you will require different capitalization for banks in small areas than that of the port Belize City. You will also require that each bank, no matter how small is incorporated separately and is capitalized separately. This to safeguard the country against widespread massive financial banking failure. Those things are obvious even to this fisherman, who knows nothing of this sort of banking. A bank is nothing more than a retail store. They don't sell goods. They take deposits, provide some commercial services and lend money. It is not a big deal! A bank manager is a storekeeper merchant, following certain rules based on risk calculations.
If banking is not a success for the Belizean consumer in Belize, it is solely because Belmopan bureaucrats and politicians are not making the correct legislation and taking the time to inform themselves of different banking practices in different parts of the world. If there are no banking loans for small farmers, it is Belmopan's fault. For they have not made legislation enabling local small domestic banks to be formed. Nor, do they control banks fees and services. If you control Southside youths who are tempted to commit robbery with gun legislation, why would you not protect citizens from robbery, by bank stealing through fees, charges and the way interest is calculated? Doesn't make sense to this fisherman.