IN unusually blunt language, Bank of Jamaica (BOJ) Governor Richard Byles has warned that weak corporate boards could destabilise the financial system, even as authorities strengthen defences against increasingly frequent economic shocks.

Speaking at the Caribbean CFO Summit in Kingston — a two-day virtual event that brought together regional and diaspora stakeholders — Byles said boards across the region are not providing the level of scrutiny required to match institutions’ risk profiles.

“Unchecked consensus weakens institutions; constructive challenge strengthens them,” Byles said, adding that weak boards ultimately leave depositors, shareholders and taxpayers exposed when risks are mismanaged.

The warning comes as Caribbean financial institutions face the aftermath of major hurricanes, lingering inflationary pressures and rising geopolitical tensions, with Byles arguing that governance failures could intensify the impact of the next shock.

The governor said many boards lack sufficient independent directors, as well as expertise in areas such as accounting, finance, technology and law, and noted that key committees are often not chaired by independent members. Independent directors, he added, should be “free from conflicts that may impair objective judgement”.

Byles stressed that effective governance requires active engagement from boards, with directors expected to challenge management decisions and enforce accountability rather than defer to executive judgement. He argued that strong institutions are built on what he described as “constructive tension” between boards and management, warning that passive oversight can weaken risk controls and expose institutions to greater vulnerability.

The result, he said, is reduced scrutiny of management relative to the institution’s risk exposure — a gap that may go unnoticed in stable conditions but can become critical during periods of stress.

This comes as policymakers push to build a more resilient financial system capable of absorbing shocks rather than relying on public support during crises.

At the same time, Byles said the financial system’s buffers — including capital and liquidity — are broadly adequate to absorb shocks at this stage, reflecting years of reforms and tighter oversight. But he warned that resilience at the system level cannot offset weaknesses within individual institutions, cautioning that governance failures could still expose vulnerabilities despite stronger safeguards.

That shift towards a more resilient system is also reducing the need for public support during crises. Byles said reforms now under way are designed to allow failing financial institutions to be resolved without recourse to taxpayer funds — a move that limits taxpayer exposure and places greater responsibility on institutions, their boards and their stakeholders.

Even with those safeguards, Byles cautioned that governance remains a critical vulnerability, arguing that strong capital buffers and tighter regulation cannot compensate for weak oversight at the board level.

He added: “This is not about regulatory compliance for its own sake. It is about ensuring that our financial institutions are better positioned to absorb shocks, adapt to change, and continue to support the real economy.”

Beyond governance, Byles warned that pressure to deliver profits can lead institutions to take on more risk than they can safely manage.

“Short-term earnings that exceed an institution’s risk capacity may appear attractive, but they erode stability over time,” Byles said, adding that boards and finance leaders must look beyond headline profits and focus on risk-adjusted returns and the strength of their capital buffers, particularly during difficult economic periods.

He noted that this pressure intensifies when margins are tight and competition rises, making strong board oversight even more critical as shocks become more frequent and severe.

But even with stronger rules in place, Byles warned that risks could still spread across the region’s highly interconnected financial system, where institutions operate across multiple jurisdictions.

“Weaknesses in one institution can transmit across markets,” he said, noting that financial groups operating across multiple Caribbean jurisdictions mean stress in one market can quickly spread across the region. He called for closer coordination among regulators, greater alignment in rules and stronger cross-border supervision to prevent those risks from spreading.

BYLES…unchecked consensus weakens institutions; constructive challenge strengthens them.