April 2010: Rebalancing Banking in Puerto Rico

Since 2006 to the present, Puerto Rico’s economy has shifted away from real economic growth. This particular cycle has been reinforced by a global financial crisis that damaged the financial system’s ability to channel savings to productive investment. All economic sectors, including households and businesses are struggling with surplus housing, buildings, equipment, and accumulated debt. Virtually every industry has shed jobs in the past two years. Bank share prices have fallen dramatically and households’ wealth has shrunk by $19 billion or 89% since 2004. And if consumers feel less rich, they are less inclined to spend. With a push from regulators, banks are less willing to lend: they have tightened loan standards. Recovery in this environment is often slow and weak but not impossible. Rebalancing PR’s banking is at the forefront. This issue examines some of the reasons for the recent bank mergers.