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How are Cayman Island banks faring?
A Friday article says this:
The worldwide financial crisis is proving a lot more damaging than was expected. Not in Cayman, yet, but we had better get ready for it to affect us severely sooner or later.
I've googled around and can't seem to find any reports worse than that one. It's fair enough to argue those banks are doing OK because bailouts from abroad have limited systematic risk in the world as a whole. But still Cayman Island banks don't seem to have gotten into trouble on their own, at least not so far.
Cayman banking is not laissez-faire as is sometimes believed, but still it is relatively unregulated and measured in terms of liabilities it is the world's fifth largest banking center. And it's doing OK. As Arnold Kling has been pointing out, transparency isn't everything.
Panama, by the way, also does not seem to be having major banking problems. The country has no central bank or lender of last resort, yet the banking system is highly liquid.
The point is not that the private client-based, tax haven, sometimes drug money, Panama and the Cayman Islands systems are automatic models for the U.S. Rather many of the critics of deregulation are not trying hard to come up with the deepest possible explanation of the crisis. A key principle of science is to consider the outliers or the points which might appear to refute your hypothesis.
It would be useful if someone would do a comparative international study of where the banking crisis has been most severe, least severe and why.
Addendum: Larry Ribstein comments.
Posted by Tyler Cowen on October 22, 2008 at 07:00 AM in Current Affairs | Permalink
Comments
"It would be useful if someone would do a comparative international study of where the banking crisis has been most severe, least severe and why"
Nouriel Roubini does this at RGE Monitor. Must reading during this time.
Posted by: StreetWalker at Oct 22, 2008 7:52:06 AM
Given the lack of transparency, is it possible that problems exist its just that they are keeping them incredibly quiet?
Also... I wonder if they use mark-to-market accounting...
Posted by: Sam Wilson at Oct 22, 2008 10:48:05 AM
Wait - unregulated banks like those in Panama are doing fine? And highly regulated banks like those in Canada are doing fine?
Oh crisis, why won't you fit my preconceived ideological expectations? Must you take everything?
Posted by: Andrew Edwards at Oct 22, 2008 10:54:46 AM
Private client, tax haven, sometimes drug money might not be automatic models for the US, but can't we at least try and keep the drug money here where the consumers are, and can't we at least try to lower taxes or become a tax haven ourselves?
Posted by: scott clark at Oct 22, 2008 11:04:59 AM
Andrew Edwards wins.
Posted by: meter at Oct 22, 2008 11:40:20 AM
"Wait - unregulated banks like those in Panama are doing fine? And highly regulated banks like those in Canada are doing fine?"
-- That makes perfect sense. If you expect Da Man to save ya, you are not allowed to take on huge risks. Also, if you know that you are on your own, you would also tend to control your risk, just to survive. In US, you know you can take on as much risk as you want, and then the Fed will bail you out. And here we are, smack in the middle. Of a shithole.
Posted by: mishka at Oct 22, 2008 1:04:29 PM
There have been lots of complaints from ruined depositors in Guernsey and the Isle of Man.
Posted by: dearieme at Oct 22, 2008 3:16:52 PM
It may be premature to conclude that the Cayman Islands proves that deregulation (or perhaps more accurately, the failure to regulate properly new products and firms) is not at the root of the current crisis. Caribbean News Net reported that:
"In particular, two bankrupt Cayman Islands hedge funds established by Bear Stearns are widely reported as having precipitated the subprime credit crisis in the United States, apart from resulting in billions of dollars in losses to their own investors."
The current crisis is not just a "bank" problem. All financial service firms (banks, investment banks, insurance companies, hedge funds, etc.) are interconnected and contributed to the current crisis.
Posted by: Elizabeth Brown at Oct 22, 2008 6:04:29 PM
Panama has a currency board like Hong Kong .So the dollar and the Fed are like the gold standard for them. Argentina had a fake one and you know the rest of history
Posted by: k at Oct 22, 2008 9:09:22 PM
"It would be useful if someone would do a comparative international study of where the banking crisis has been most severe, least severe and why."
Is that your way of fishing for a grant?
Posted by: Alan at Oct 24, 2008 5:36:16 AM
