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Competition in Financial Markets
Session III
LACCF 2017
Presented by:
CARICOM Competition Commission
Interactions between Competition Authorities
and Sector Regulators in CARICOM
Acknowledgement
Presentation on behalf of the CARICOM Competition
Network
Members of the Network:
• CARICOM Competition Commission
• Jamaica Fair Trading Commission
• Barbados Fair Trading Commission
• Trinidad and Tobago Fair Trading Commission
• Guyana Competition and Consumer Affairs Commission
Objective of the Presentation
Main focus is on the commercial banking sector.
Also includes aspects of Jamaica’s contribution to the Latin
American and Caribbean Competition Forum which looks at the
broader financial sector.
Commercial Banking Sector in CARICOM
Antigua &
Barbuda Barbados
Belize
Dominica
Grenada
Guyana
Jamaica
Montserrat
Saint Kitts &
Nevis
Saint Lucia
Saint Vincent &
the Grenadines
Suriname
Trinidad &
Tobago
0
1
2
3
4
5
6
7
8
9
10
No
. o
f C
om
mer
cia
l B
an
ks
Median = 5
Max = 9
Min. = 2
Legislative Framework for Competition in CARICOM
(Commercial Banking Sector)
Country Competition
Law
Draft
Competition
Bill
Is the Banking Sector
Exempted?
YES NO
Barbados
Belize
Guyana
Jamaica
Suriname
Trinidad & Tobago
OECS: Antigua & Barbuda
Dominica
Grenada
Montserrat
Saint Lucia
St. Kitts & Nevis
St. Vincent & Grenadines
Competition Authorities in CARICOM
─ Chapter 8 of the Revised Treaty states that each Member State shall enact its competition law and establish a national competition authority.
─ The Treaty also provides for the establishment of a regional competition authority to ensure that anti-competitive business conduct does not frustrate the Single Market objective:
─ To date the following authorities have been established in CARICOM:
• CARICOM Competition Commission (regional institution)
• Jamaica Fair Trading Commission
• Barbados Fair Trading Commission
• Trinidad and Tobago Fair Trading Commission
• Guyana Competition and Consumer Affairs Commission
Why is assessing the banking sector important to the
Competition Authorities in CARICOM?
The need for assessments are customer driven.
• Concerns raised about possible high bank charges
• Possible collusion amongst banks
Assessments by Competition Agencies in CARICOM
Country Studied (Year) Method Results
Barbados
(2012) Market Study
─Banks appeared to compete in
interests on loans.
─Evidence suggested that
competition in sundry bank charges
was not as robust as with interest
rates.
Jamaica
(2011) Market Study No evidence of collusion
Suriname
(2017)
Panzar-Rosse Monopolistic competition
HHI Highly concentrated
Guyana
(On-going)
Panzar-Rosse
To be determined
HHI
Sector Regulators (Commercial Banking Sector)
• Central Banks
- Barbados
- Jamaica
- Guyana
- Other CARICOM countries
• Central Bank
• Securities and Exchange Commission
- Trinidad and Tobago
Roles of Central Banks
(Commercial Banking Sectors)
Objective of all Central Banks in CARICOM
─ Promote and develop sound financial structures in each country.
None of the Central Banks have a clear responsibility to promote or
protect competition! But a consumer element for a few.
Bank of Jamaica
─ Banking Services Act of Jamaica provides for a Code of Conduct
addressing dealings with customers, e.g.
Simplification of language in customer contracts and
obligations to provide reasonable notice of changes in fees and
charges, interest rates and terms and conditions
Roles of Central Banks
(Commercial Banking Sectors)
Central Bank of Trinidad and Tobago
─ Office of the Financial Services Ombudsman (established by an amendment to the Financial Act) and Code of Conduct
To provide assistance to customers who are not satisfied with their financial services provider; and
To mediate on behalf of those who have a complaint with their institution.
Eastern Caribbean Central Bank
─ Code of Conduct (not legally binding)
To ensure a fair and consistent approach in customer relations and provide minimum standards for customer care.
To promote full disclosure of information.
To increase customer awareness of their rights and obligations.
Financial System Total Assets as % of GDP (2014)
113.6 141.5
87.2
163.6
66.2 46.2 52.3 58
74.3 81.1
52.2
0
50
100
150
200
250
Bahamas Barbados Belize ECCU Guyana Haiti Jamaica Suriname Trinidad &
Tobago
CARICOM
To
tal A
sset
s a
s a
% o
f G
DP
Banks Credit Unions Insurance Companies Other
Why is assessing competition in the banking sector important to Central Banks?
Data Source: Caribbean Region Financial Stability Report 2015
In terms of assets, the banking sector is the dominant financial intermediary in the
financial systems of CARICOM Member States.
Competition Assessments by Central Banks in CARICOM
Country Studied (Year) Method Results
Trinidad and Tobago
(2000)
Panzar-Rosse Monopolistic competition
Conjectural variation
model
Competition greater than Cournot
behaviour, with no increase in the
level of competition after 1989.
Jamaica
(2003)
HHI Highly concentrated
Panzar-Rosse Monopolistic competition
Barbados
(2004) Bresnahan-Lau
The level of competition in the sector
increased from 1992-2002.
Competition decreased in 1991 and
2003, coinciding with mergers during
those years.
Eastern Caribbean
Currency Union (2011):
Antigua & Barbuda
Grenada
Saint Lucia
Saint Kitts & Nevis
HHI
HHI for Antigua and Barbuda below
2000 for most years but highly
concentrated for the other countries.
Panzar-Rosse Monopolistic competition in all
countries
Lerner Index
Lerner Index lowest for Antigua and
Barbuda and highest for St. Kitts and
Nevis.
Competition – Financial Stability Nexus?
Country Studied (Year) Method Results
Jamaica
(2009) Regression analysis
Competition improves commercial
bank soundness but increases
financial instability in the merchant
bank sector.
Eastern Caribbean
Currency Union (2011):
Antigua & Barbuda
Grenada
Saint Lucia
Saint Kitts & Nevis
Granger-causality Competition negatively affects
financial stability.
Roles of other Sector regulators
(Commercial Banking Sector)
Trinidad and Tobago
─ Established by the Securities Industries Act.
─ Four primary functions:
Registers companies (including banks) on the securities exchange.
Ensuring orderly, fair and equitable trading in the securities market by
conducting investigations of possible breaches of the Securities Act
and customer complaints against registered market actors.
Ensuring investor protection and instilling investor confidence through
investor education programmes.
Enforcement of the legislation which governs the functioning of the
industry.
Framework for protecting competition in the banking
sector of Trinidad and Tobago?
Securities and
Exchange
Commission
Financial Services
Ombudsman
Mergers Unilateral Conduct
Restrictive agreements
Challenges to Competition Law Enforcement in
CARICOM (Commercial banking sector)
─ Uncertainty of the role of the Central Bank and SEC of Trinidad and Tobago in addressing competition concerns.
What type of analysis or procedures will be used to examine mergers between banks, or investigations regarding abuse of dominance and restrictive agreements?
Particularly for abuse of dominance and restrictive agreements given the mandate of the Office of the Financial Services Ombudsman!
─ Overlapping jurisdiction in Jamaica
The Jamaica Stock Exchange vs. The Jamaica Fair Trading Commission (JFTC)
Court held that JFTC jurisdiction is ousted in sectors governed by other legislation
JFTC could investigate but might not have the power to enforce the national competition law.
Jamaica has no merger provisions. Merger assessment is conducted by the central bank – no consideration to consumers.
Challenges to Competition Law Enforcement in
CARICOM (Commercial banking sector)
─ Challenges to cross-border competition law enforcement
CCC relies on national laws and cooperation from national
authorities – e.g. securing evidence.
Member States with exemptions in their national laws (e.g.
banking sector in Trinidad and Tobago) might make it difficult
for the CCC to access evidence.
Treaty speaks to cooperation with national competition
authorities and not “sector regulators”. It also refers to
“competent authorities” but this is not defined.
The laws establishing sector regulators do not allow for
cooperation with non-national competition agencies like the
CCC.
Overcoming the Challenges to Competition Law
Enforcement in CARICOM through Cooperation
(Commercial banking sector)
Trinidad and Tobago
Trinidad and Tobago Fair
Trading Commission
Central Bank of Trinidad and
Tobago
Securities and Exchange
Commission
(a) Formal relationship
(b) Joint training sessions
in competition law
(a) No relationship exists but
one is necessary for the two
agencies to address
unilateral conduct and
restrictive agreements
Overcoming the Challenges to Competition Law
Enforcement in CARICOM through Cooperation
(Financial sector)
Jamaica
Financial Inclusion Steering
Committee
Central Bank
Financial Services
Commission
Fair Trading Commission
Consumer Affairs
Commission
Informal relationship Informal relationship
Overcoming the Challenges to Competition Law
Enforcement in CARICOM through Cooperation
(Commercial banking sector)
CARICOM Competition Commission
─ Amendments/clarifications to the Treaty are needed to secure
cooperation from all sector regulators, including central banks.
Definition of “competent authority” – legal clarity
Possible inclusion of provisions authorising sector regulators to
cooperate with the CCC?
─ Increase the awareness of sector regulators of the role of the CCC
regarding cross-border competition law enforcement.
Capacity building workshops throughout the region in 2016.
Training using internet platforms slated for 2017.
Market Studies in the Financial Sector
Assessment of the banking sector
(Jamaica and Barbados Market Studies)
Barbados (2012) Jamaica (2011)
Motivation behind
the study
Public concerns of collusion
amongst the commercial
banks.
Public concerns of collusion
amongst the commercial banks.
Focus of the study Banking and interest rate
charges
─Minimum balance charges
─Credit and debit card usage
─Standing orders
─Account transfers
─Bank statements
─Inter-bank charges on the
CARIFS Network
Fees charged on ancillary
services relating to:
─credit and debit cards usage
─bill payment
─wire transfers
─Minimum deposit violations
─Dormant accounts
─And more
Information relied
on for the study
─ Commercial bank data
─ Customer survey conducted
by BFTC
─Bank interviews
─Commercial bank data
─ Customer survey from CAC
─Information on regulatory
impediments
Assessment of the banking sector
(Jamaica and Barbados Market Studies) Barbados (2012) Jamaica (2011)
Techniq
ue used
─structure of the market
─Examination of patterns and trends in
frequency and timing of
implementation of fees and interest
rates.
─structure of the market
─dispersion of fees over 5 years
Findings
from the
study
─Sector moderately concentrated
based on HHI.
─High barriers to entry (regulatory
barriers, sunk costs - distribution
network, e.g. ATMS, POS)
─Low degree of switching by bank
customers (although it is not hard).
─Customers not well informed about
changes in bank charges and interest
rates.
─Competition in loans market (based
on interest rate movement).
─Competition on bank charges for
sundry services not robust.
─Sector highly concentrated based
on HHI.
─Low barriers to entry and exit
offering a competitive constraint.
─Low degree of switching by bank
customers (high costs, loyalty).
─Consumers not well informed
about changes in bank charges.
─Market characteristics could allow
the two largest banks to collude or
exercise collective dominance.
─No evidence of collusive behavior
found.
Assessment of the banking sector
(Jamaica and Barbados Market Studies) Barbados (2012) Jamaica (2011)
Recommendations ─ Standardised definitions of
services to enable customers to
make comparisons between the
banks.
─ Bankers association inform the
public of developments in the sector.
─Banks frequently review their fee
schedules to make certain they are
relevant to the respective services
offered.
─Mechanisms to make banks
provide adequate information on
their services to customers
─Facilities to make it easier for
consumers to access information
about banking services.
─ Mechanisms to make it easier for
banks to access customer
information on credit worthiness.
What has
changed?
─Recommendations not adopted but
the BFTC found comfort in the
bankers associations acknowledging
that competition in the sector is
important.
─Bankers association challenged
key findings of the study and
resisted the measures
recommended.
─Two credit bureaus introduced.
─Banking Code of Conduct allows
banks to provide adequate
information to customers.
Lessons Learnt by CCC from the banking sector
(Jamaica and Barbados Market Studies) Barbados (2012) Jamaica (2011) CCC comments
HHI ─ Average 5-year
HHI
─ Compared 2005
and 2009
─Prefer a dynamic approach to
analysing HHI. The Barbados
approach does not account for
changes throughout the years,
which could provide more
information about competition in
the market.
Customer
switching
─ Past behaviour of
bank customers
─ Past behaviour
of bank customers
─Information is useful but does
not account for current economic
climates in the region. Customers
might not have switched in the
past but due to economic climate
they may switch in the future.
The analysis should therefore
account for this.
Assessment of the Credit Union sector
(Jamaica 2012 Market Study)
Jamaica (2011)
Motivation behind the study ─Concerns by members that fees charged by credit
unions were high and in some cases higher than
commercial banks
─The need for JFTC to have a deeper
understanding of the sector.
Focus of the study Fees charged on ancillary services relating to:
─debit cards transactions
─withdrawals
─wire transfers
─Standing orders
Information relied on for the
study
─Information on regulatory impediments
─Income from providing ancillary services
─Fees charged
Techniques used ─Dispersion of fees over 4 years
Assessment of the Credit Union sector
(Jamaica 2012 Market Study)
Jamaica (2011)
Findings
of the
study
─No credit union had a market share greater than 15 percent in
relation to assets.
─From the parish level, 9 regions are highly concentrated and 3
moderately concentrated.
─Low barriers to entry and expansion (easy to get a license and to
consummate a merger).
─No significant increases in the fees ( in real terms) for ancillary
services over the review period.
─Price spread between the lowest and highest average fees widened in
2010 relative to 2007.
─For 7 regions the size of the competitors posed competitive
constraints.
─Competitive constraints are limited by membership criteria
─The average credit union fee is lower than the average bank fee for
seven selected comparable services.
Assessment of the Credit Union sector
(Jamaica 2012 Market Study)
Jamaica (2011)
Recommendations ─Qualifications for membership in credit unions
should be adjusted to allow more persons to become
eligible to join any given credit union.
─Since consumers are also part owners of the credit
unions in which they are members, they should be
encouraged to play a more active role in the
operations of their credit union through participation
at Annual General Meetings