Chapter 10. Financial Interconnectedness in the Caribbean: Challenges for Financial Stability


The global financial crisis of 2008–09 and, in the Caribbean, the crisis stemming from the collapse of Trinidad and Tobago–based CL Financial Group in 2009, raised awareness of risks to financial stability from financial interconnectedness. Even though interconnectedness can promote international risk sharing, competition, and efficiency (Claessens and others 2010), it can also spread adverse shocks in unexpected directions, and sometimes in an unexpectedly virulent manner (Kaminsky and Reinhart 2000). For instance, when CL Financial Group, which had assets of US$16 billion at the end of 2007 (about 30 percent of the Caribbean’s regional GDP), collapsed, the adverse impact spilled over to all the Caribbean Community and Common Market (CARICOM) member states except Jamaica and Haiti, with claims on CL Financial as high as 17 percent of GDP in the Eastern Caribbean Currency Union (ECCU).1