The local banking industry posted modest earnings in 2014, reaching a Pre-Tax ROE of 3.4% on a consolidated basis. When excluding Doral, which was ultimately closed by the OCFI and the FDIC after years of financial and legal troubles and was the only bank to report negative returns in 2014, the pre-tax ROE of the industry reached 6.8%. While productivity levels improved in 2014 vis-à-vis 2013, as did capital levels, the delinquency ratio for the industry, after four consecutive years of decline, experienced some deterioration. The 90+ days past due non accruing ratio increased from 6.0% in 2013 to 7.3% in 2014. In anticipation of potential future losses due to nonperforming assets and a macro-economic environment riddled with uncertainties, local banks have increased their loan loss reserves. Doral, after struggling to survive for several years, was ultimately closed by the FDIC and partially bought by Popular and FirstBank, who will further solidify their positions in the local banking market. In this issue we analyze some of the potential impacts of the 2015 tax reform, whose major component is the introduction of a value added tax (VAT), on the overall economy and specifically the banking sector. There are both downsides and upsides to the proposed transformation of the Island’s tax code.