WILLEMSTAD – Hurricanes, pandemics and international financial turmoil have repeatedly demonstrated how quickly Caribbean economies can be disrupted. The Centrale Bank van Curaçao en Sint Maarten (CBCS) now wants another tool available before the next crisis arrives.
The Central Bank is working toward the introduction of a countercyclical capital buffer, or CCyB, for banks operating within the monetary union.
The concept is relatively straightforward: build additional financial reserves during good times so that banks have something available to draw upon when conditions suddenly deteriorate.
For Curaçao and Sint Maarten, the experience is more than theoretical.
Hurricanes Irma and Maria demonstrated the vulnerability of Caribbean economies to natural disasters, while the COVID-19 pandemic brought tourism and other economic activity to an abrupt halt.
Such shocks can quickly affect the banking system. Businesses lose revenue, households struggle to service loans and banks face increasing numbers of problem loans. At precisely the same time, businesses and households may need additional financing to survive and recover.
That creates a difficult cycle. Banks facing growing losses may become more cautious and restrict lending. Less credit then puts additional pressure on businesses and the economy, potentially creating still more losses.
The countercyclical capital buffer is designed partly to break that cycle.
According to the Basel Committee on Banking Supervision, the CCyB requires capital requirements to reflect the broader macro-financial environment. Capital accumulated as systemic risks grow can subsequently help protect banks when those risks materialize.
The CBCS has been gradually developing the framework necessary to use such instruments.
An IMF review published in March 2026 said the CCyB was expected to become the first capital-based macroprudential instrument in the CBCS toolkit. The IMF also indicated that the Central Bank's broader macroprudential framework was expected to be finalized during 2026.
The development represents a significant evolution from the situation several years ago. In 2021, the IMF found that although the CBCS already possessed some macroprudential tools, including liquidity requirements and limits involving lending and deposits, its overall framework remained at an early stage and there was no countercyclical capital buffer.
The CBCS's 2026 Financial Stability Report confirms that work on the instrument is now progressing. The Central Bank intends to use a range of financial stability indicators to determine how the buffer should be calibrated for the monetary union.
Those indicators can include developments in bank lending, capitalization and liquidity, property markets and stress tests designed to determine how financial institutions would perform under adverse economic conditions.
The Central Bank's current assessment remains reassuring. Banks, insurers and pension funds remained resilient in 2025, supported by solid economic growth and strong capital and liquidity positions. But the CBCS simultaneously warned that international uncertainty and domestic vulnerabilities are increasing.
That explains why the discussion about an additional buffer is taking place now rather than during a crisis.
The fundamental lesson from Irma, Maria and COVID-19 is that small island economies may have little control over when the next major external shock arrives.
What regulators can control is how prepared the financial system is when it does.