Financial institutions expanded rapidly as a result of the oilbased liquidity that the financial system experienced in the 1970s. This was especially true of nonbanking intermediaries, such as finance houses, which underwent the fastest growth. In the late 1980s, the islands' financial network included the Central Bank, various government development organizations, commercial banks, finance companies, mortgage and trust companies, insurance companies, a stock exchange, and other business services. Although legislation granted the Central Bank generous control over the financial system, bank intervention was generally restrained. Increasing regulation over nonbanking financial institutions was instituted in the mid-1980s, however, as several poorly managed finance companies collapsed and were subsequently rescued by the Central Bank. The sector as a whole contracted after the country's assets peaked in 1982. Government policies generally favored tight monetary policies to restrain inflation and help stabilize national and international accounts during the post-boom adjustment period.

The Central Bank was established in 1964 and was authorized to issue currency, regulate credit, buy and sell securities and discount notes, and underwrite government loans. Although the Central Bank contained about 30 percent of the nation's assets in 1985, its share was declining as international reserves were being depleted. The government also owned and managed numerous development finance institutions, most notably the IDC, the Agricultural Development Bank (ADB), and the Mortgage Finance Company (MFC). These organizations controlled about 4 percent of national finances. The IDC, established in 1959, was the most important development finance organization and was one of the top lenders to industry. The portfolio of IDC lending generally reflected government industrialization strategies and also contained purely government projects. The ADB was the most important lender to agriculture, especially to the livestock subsector. Although the MFC was the key lender to the construction industry, in 1985 the government created the Home Mortgage Bank to serve as a major institution in the construction industry.

The country had 8 commercial banks with 117 branches, almost all of which were controlled by Trinidadian and Tobagonian nationals as prescribed by law. The process of localization of the islands' banks began in the 1970s, which eventually placed a large share of Canadian and British banks in the hands of nationals. The islands' largest bank was the Republic Bank, formerly the British Barclays Bank. Commercial banks contained 56 percent of the nation's assets in 1985. Twenty-seven percent of commercial bank loans went to individuals, primarily for automobiles, followed by government, particularly public bodies, with 15 percent, manufacturing 13 percent, distributive trade 12 percent, construction 8 percent, and the balance to various other services and productive activities. Interest rates for deposits and loans averaged 8 and 12 percent, respectively, in the mid-1980s, roughly comparable with industrial nations and low compared with most developing countries. Reserve ratios were freely utilized to control the money supply and credit; in 1985 the cash reserve ratio was 17 percent, and the liquidity reserve ratio reached upwards of 22 percent. In 1986 the government introduced the Deposit Insurance Fund, which protected and insured savings up to about US$14,000.

Nonbanking financial institutions, encompassing finance houses, trust and mortgage companies, insurance companies, and other business services, have proliferated since the 1970s. These institutions contained over 10 percent of the country's assets in 1985, trailing the commercial banks and the Central Bank. In the mid-1980s, there were twenty-two finance companies with some seventy-six branches. After the 1984 collapse of International Trust and the faltering of other nonbanking institutions because of cash flow problems, the Central Bank increased regulation of these services. As of December 1985, there were fifty-nine insurance companies registered on the islands, although some of these were also faltering. There were eight trust and mortgage finance companies, devoted mostly to real estate. Unlike other Commonwealth Caribbean countries, financial services in Trinidad and Tobago were operated predominantly by citizens of that nation, and laws specified strict limitations on the extent of the participation of foreigners.

Trinidad and Tobago also operated a small stock exchange, which was established in 1981. In 1985 nearly 50 million shares of stocks were sold, involving over 11,000 transactions at a market value of US$62 million. The exchange's composite index was declining in the 1980s because of the falling value of most stocks and discouraging economic indicators. The exchange was limited by extensive government involvement in the economy and the large number of family-run businesses, which limited the number of companies whose shares were publicly traded. In addition, few firms sought the sale of stocks as a viable way to raise capital, instead opting for commercial bank loans.

In 1964 the Trinidad and Tobago dollar replaced the British West Indian dollar as the national currency. Eastern Caribbean dollars--the common currency of members of the Organisation of Eastern Caribbean States (OECS--see Glossary) and pegged to the United States dollar at EC$2.70 equals US$1.00--and other currencies also circulated. From 1972 to 1976, the Trinidad and Tobago dollar was floated against the British pound sterling; after 1976, however, the Trinidad and Tobago dollar was pegged to the United States dollar. The first major depreciation of the Trinidad and Tobago dollar since June 1976 occurred in December 1985, when the country's currency was devalued 50 percent against the United States dollar. As a result of the devaluation, the exchange rate moved from US$1.00 to TT$2.40 to US$1.00 to TT$3.60. This reduced international reserves but was expected to increase export competitiveness. Government foreign exchange controls existed, particularly for foreign travel by nationals.

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Source: U.S. Library of Congress