MANY YEARS AGO, while debating a bill in the senate, I drew attention to an unfair practice banks were foisting on the public. It was the “minimum monthly” or “minimum quarterly” balance method of paying interest on savings.
If your bank balance was $100 on the first day of the month and you then deposited $100 000 on the second day of the month, you would be paid interest on the $100, although the bank had the use of the $100 000 for 29 days of the month. If the minimum quarterly balance was being used, they would have the use of the money for 89 days (if the months had 30 days) without paying interest.
What amazed me though, was that I didn’t see one senator bat an eyelid, so it seemed to me that they hadn’t grasped the implications or they didn’t care. Neither did I hear one member of the public make a comment on it.
After some time, it seemed that the banks saw the error of their ways or were given some encouragement by authorities, and they started offering at least one account with interest paid on the daily balance, which in my opinion, is the only fair way.
Since then Government, to facilitate its plan of selling more Government paper, removed the minimum limit on savings interest. The result is that banks are paying so little interest that the method used to calculate it seems neither here nor there. To add insult to injury, they have become more and more aggressive in their charges, especially to those who have limited savings. But many more people seem to be wising up to the fact that we’re being taken advantage of, and our Vincentian neighbours even demonstrated outside the offices of one bank there.
Of course, the answer would appear to be to turn to the credit unions, but apparently they aren’t allowed to offer all the services that banks can. Furthermore, we seem now, more than ever, to be tied to the banks – especially the foreign-owned ones, because of the “correspondent bank” issue.
Without ties with these correspondent banks, Barbadians wouldn’t be able to carry out foreign exchange transactions. This would have severe implications for trade, foreign direct investment, the tourism industry, which relies heavily on the use of credit cards for payment, as well as remittances to Barbadians from relatives abroad, and pensions paid from overseas to returning nationals.
Recent happenings in the US suggest that there may be reductions of correspondent banking links. While we may be spared the full impact of the severing of ties because the majority of our banks are foreign owned, we will be placed more and more at their mercy.
On the topic of foreign exchange, concern continues to be expressed that our forex level doesn’t reflect the increase in visitor arrivals. One explanation is that holidays are usually paid for overseas before the visitor even reaches Barbados, added to the fact that there is more and more widespread use of credit cards.
But there could be another reason. I was surprised to learn that many or maybe most of the foreign exchange remitted via wire transfer to Barbados is not deposited in our banks as foreign currency. With many banks now having their headquarters in Trinidad or elsewhere in the Caribbean, the foreign exchange is apparently now deposited in the head office, then transferred to our banks in local currency.
I couldn’t believe this when I was told, so I checked with staff at the Central Bank who confirmed it. No wonder we’re low on foreign exchange. Is shortage of foreign exchange in the banking system the reason I’ve been hearing of businesses having unusually long waits for foreign exchange to do business?
The Wild Coot provides us with some interesting insights into the workings of the banking system in his weekly columns and we know he’s speaking from a position of experience. The banks seem to be crying foul now they’ve realised that the Government paper is wooing some of their savings and “upsetting the apple cart” although they quite happily accepted the deregulation of the savings interest rates which allowed them to walk all over us.
As Wild Coot warns “greed loses everything while wishing to gain everything”.
• Dr Frances Chandler is a former Independent senator. Email: [email protected]
