The Caribbean Development Bank (CDB) has published a report outlining the findings of its callable capital review. The report clarifies the specific circumstances that could lead to a capital call and governance procedures that would govern a call, in the remote case it might be required.

Common among Multilateral Development Banks (MDBs), callable capital is a shareholder commitment that acts as a guarantee for bondholders and creditors. Unlike paid-in capital, it is only accessed under extreme distressed circumstances. 

The review follows recommendations from the G20-sponsored Independent Review of Capital Adequacy Frameworks and request from G7 countries, which encourages MDBs to better account for the value of callable capital in their capital adequacy framework and financial structures. Similar reports have been issued by the European Bank for Reconstruction and Development, the African Development Bank, the Asian Development Bank, the Inter-American Development Bank and the International Bank for Reconstruction and Development. 

CDB’s assessment included three primary components:

• An evaluation of the legal and governance provisions for the Bank’s callable capital  established in the Bank’s Charter.
• Reverse Stress Testing to analyse extreme, hypothetical scenarios to identify the financial triggers that could necessitate a capital call.
• Consultations with Shareholders to assess the legal, accounting, and budgetary processes for responding to a call.

The review confirmed that the Bank has the governance procedures and legal entitlement to access its shareholders' callable capital if needed. While such a scenario remains extremely unlikely, this guaranteed funding ensures the Bank can always meet its obligations to bondholders and fulfil its guarantees. Additionally, the reverse stress test verified the Bank's financial strength and prudent capital policies, confirming that a call on this capital is extremely remote.

Feedback from a representative sample of shareholders, belonging to G7 countries,  confirmed that their subscriptions are legally binding commitments. Furthermore, these shareholders have established processes to respond to a call within the timeframe required for the Bank to meet its debt and guarantee obligations before they fall due.

In collaboration with other MDBs, the CDB continues to engage with Credit Rating Agencies (CRAs) to refine the criteria used to assess multilateral lending institutions. By providing greater clarity and transparency, this report ensures CRAs are better informed when assessing the value of the Bank's callable capital.