FORMER managing director of the Financial Sector Adjustment Company (Finsac), Patrick Hylton said on Tuesday that there were too many financial institutions operating in the island during the 1990s and placed blame for the financial meltdown squarely on operations at these institutions.

“There were too many institutions in the market with some going off into other ventures, …many of them in competition with their customers,” Hylton told the ongoing enquiry into the 1990s financial sector meltdown.

He also accused many of the institutions of over-investment in real estate, which he argued was driven by the high-interest environment at the time, where real estate values “kept going up”.

Hylton, who now heads the National Commercial Bank (NCB), was giving testimony at the enquiry held at the Pegasus hotel in Kingston.

“A common characteristic at the intervened financial institutions was the absence of an appropriate framework for the management and monitoring of critical risk areas such as liquidity and foreign exchange risk,” said Hylton.

He added that on the credit risk and operational risk side of their businesses, “there were also significant inadequacies and quite frequently an inappropriate and insufficient governance framework”.

At the same time, Hylton — responding to repeated comments that NCB was given special treatment — defended the decision of the then People’s National Party government to maintain the bank as a going concern.

“Our analyses and those of experts we engaged justified maintaining some institutions such as the merged Union Bank, Life of Jamaica and NCB as going concerns,” Hylton said in his witness statement.

According to Hylton, analysis supported NCB having greater value as a going concern “not only in relation to its intrinsic value but also in terms of its role as a facilitator of economic growth”.

“For others, the state of the institutions, particularly the significant insolvency, their size and composition of their balance sheet made rehabilitation either impossible or not feasible,” said the NCB boss.

He added that the decision to maintain NCB was also driven by the view that there needed to at least one other large institution in the commercial banking space to compete with and prevent total dominance by the Bank of Nova Scotia.

“This could become a nightmare and undermine the stability, which had been restored to the sector while we worked through the problems…”.

NCB’s size and interconnectedness was very important, said Hylton.

Hylton, who was there from the inception, left Finsac in 2003 and joined NCB as deputy group managing director. A year later, he took over the reins as group managing director.