BRIDGETOWN, Barbados, CMC – The board of directors of the Barbados-based Caribbean Development Bank (CDB)) a Callable Capital Report has been approved, aligning with peer AAA-rated Multilateral Development Banks (MDBs).
Callable capital is a financial safety net provided by shareholders should the Bank require additional funds to boost investor confidence, increase lending capacity, or strengthen financial stability in an emergency.
CDB’s evaluation follows other MDBs’ efforts to implement the G20-sponsored Independent Review of Capital Adequacy Frameworks recommendations.
The region’s premier financial institution said that other MDBs, such as the European Bank for Reconstruction and Development (EBRD), the African Development Bank (AfDB), the Asian Development Bank (ADB), the Inter-American Development Bank (IDB), and the International Bank for Reconstruction and Development (World Bank), undertook the same exercise.
CDB’s report covered three main areas, namely a review of the agreement establishing CDB regarding callable capital, which focused on the legal considerations and mechanisms surrounding making a demand on the callable capital shares.
The Bank also did an illustrative “reverse stress test,” which considered the extreme hypothetical scenarios that would give rise to the financial circumstances that could trigger a call on callable capital and a summary of shareholder’s reviews by many member countries outlining their legal, accounting and budgetary processes for responding to a request on callable capital.
It said that significant conclusions were reached following the review by the Bank’s legal department.
“Key shareholders consider callable capital subscriptions to be legally binding commitments. The process clarifications from shareholders also demonstrate the strength of their obligations and well-defined process to respond to a call on callable capital.”
The CDB said that the reverse stress test, performed by its Office of Risk Management, highlights the Bank’s considerable financial strength and prudent capital adequacy policies, illustrating that a call on CDB’s callable capital is an improbable event.
It said that the decision to make a call sits with its board of directors.
“CDB, jointly with other MDBs, continues to engage with Credit Rating Agencies (CRAs) to review and enhance the credit rating criteria used to assess multilateral lending institutions. The additional information and analysis in the report bring greater clarity and transparency to callable capital, which may better inform CRAs’ assessment of the value of callable capital.
CDB’s chief risk officer, Stefano Capodagli, said, “The findings augur well for CDB and our stability and ability to deliver to our shareholders and clients.
“The review shows that the Bank is very stable and well prepared to handle extreme financial shocks that are unlikely to occur,” said Gapodagli, referencing CDB’s Capital Adequacy Framework.
“We proactively manage our assets and liabilities with strong shareholder support while ensuring timely interventions if needed. Even in extreme scenarios, the Bank has measures to mitigate financial strain.”
During the review, CDB’s major shareholders also confirmed their commitment to providing callable capital, if required, in all cases, with processes in place to respond quickly within the timeframes required for CDB to meet its obligations.
“The review aligns with global efforts to increase the investing capacity of MDBs with the inclusion of callable capital into capital adequacy calculations. This approach is expected to be validated by credit rating agencies and help them to better assess the value of callable capital to MDBs. In addition, it could allow MDBs to expand financial capacity to tackle increasing demands on their resources due to growing development needs,” the CDB added.
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