The number of banks registered in the Cayman Islands continued its decline from previous years in 2011.
After having fallen 4.3 per cent in 2009 and 7.5 per cent in 2010, the total number of licensed banks dropped by a further 4.9 per cent last year, according to Cayman Islands Monetary Authority statistics. Bank numbers have in fact declined since 1997, when they peaked at 594.
The number of Class A banks, which are allowed to conduct banking business in Cayman, fell from 17 to 15 and the number of Class B banks, which solely conduct banking business on behalf of overseas customers, declined from 229 to 219. The drop of Class B banks was even steeper in the final quarter of 2011, falling from 234 to 219.
In part, the historic decline is due to consolidation.
“Banks have merged all over the world: banks have closed all over the world,” said Gonzalo Jalles in a recent interview with Cayman Financial Review. “As a result the numbers have reduced here as well.”
Former chairman of the Cayman Islands Bankers Association Eduardo da Silva believes the numbers will continue to fall to 150 to 200 in the future.
“The times when we had 600 banks certainly won’t come back,” he said.
While the number of Cayman registered banks from Canada, Mexico and South America increased from 55 to 61, the number of European banks dropped from 73 to 66 in 2011. The largest decline affected US banks registered in Cayman, which fell from 66 to 56 or more than 15 per cent. The steep decline is due to the US Dodd-Frank legislation, which in June of last year repealed Regulation Q, a ban on the ability of US banks to pay interest on business checking accounts. As a result of the ban, offshore cash management structures in the Cayman Islands developed, which allowed commercial banking customers to gain overnight interest income on their account balances.
These relatively costly Eurodollar sweep structures are made increasingly redundant as US banks now have the ability to pay interest on business checking accounts held onshore in the United States.
Consolidation also affected the money service providers, including remittance services, with the total number of service providers falling from 8 to 6.
Meanwhile, hedge fund numbers ended the year exactly where they began with 9,258 funds registered in the Cayman Islands. Although during the year that figure had grown to 9,431 the seasonal drop in the fourth quarter returned fund numbers to their initial level.
The total number of insurance companies remained also largely flat in 2011 at 776 compared to 778 twelve months ago. Class A insurers, however, fell by 10 per cent from 30 to 27. This was offset by captive insurers which climbed from a seven year low of 720 in the first quarter of 2011 to 739 at the end of the year.
The number of trust companies fell by 2 per cent from 150 to 147.
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