Preparing for a grand economic storm

POSTED: 09/18/11 10:53 PM

News that the Central Bank of Curacao and St. Maarten has increased the reserve requirement for commercial banks should grab every one’s attention. Economists will no doubt have intellectual debates about what it means for the continued economic recovery, but there is something each of us in society needs to understand: Life is really getting more difficult.

The simple truth is requiring banks to put more in reserve means that loans will be harder to come by. Banks will scrutinize every detail of every application even more in order to ensure that the people that they grant loans can truly pay them back. One the hand it might mean banks won’t be giving loans for frivolous like vacations, but we fear it may mean a tight mortgage market is about to get even tighter.

The news of the greater reserve requirement also means that the banks will be looking to scale up collecting from people who are not paying back what they already owe. For the average man, this could mean more phone calls, more letters and potentially the offer of a deal that will ensure payment.

More generally it means the Central Bank thinks the banks need to put even more money away for what won’t just be rainy days. It would seem more likely that a grand economic storm is building on the horizon and the Central Bank wants to shore up the dykes before the high swells get here. We would all do well to follow that course.

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