The History of Banking in Trinidad Essay

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Why do banks disappear? : A History of Bank Failures and Acquisitions in Trinidad, 1836-1992 ABSTRACT The history of banking in Trinidad offers a rich array of banking failures and acquisitions from which policymakers can draw lessons. Using the historical approach, this paper examines the determinants of individual bank failures and acquisitions in Trinidad during the period 1836 to 1992. The historical approach is useful for diagnosing the origins of banking failures since it takes a long-term perspective. Second, by focussing on particular events, the historical approach isolates the fundamentals of the problem, not to be preoccupied by arguments over the efficiency or desirability of particular policies for specific current problems. The historical perspective therefore, helps to avoid the mistake of diagnosing the symptoms of a problem for its causes. This paper argues that bank failure and acquisitions result from poor responsiveness to market structure and the competitive environment, lax lending and investment behaviour of banks, ineffective recruitment and retention of staff, government intervention and financial instability. Keywords: Bank failures; Bank Acquisitions; Trinidad Sean Ng Wai University of the West Indies Department of History Introduction As the worst economic crisis in decades continues to take its toll, many banks will disappear from the market because of failure or through consolidation with other banks. Bank failure occurs when a bank is unable to meet its obligations to its depositors or other creditors, owing to unwarranted depositor withdrawals during events characterised by contagion or panic, or as a result of fundamental bank insolvency. In an attempt to avert imminent failure, some banks may consolidate their operations with other banks through acquisitions or mergers. An

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