Financial Security 4
The Government has announced the creation of a financial safety net. It has taken about eight years for the Ecuador look for mechanisms to prevent or manage at a lower cost a potential banking crisis. This reform is of great value and deserves to be supported by major stakeholders and those who do say in the country. From what is known, the financial safety net would include a liquidity fund, a limited deposit insurance and bank resolution mechanisms. The liquidity fund is critical of the lack of lender of last resort. Unable to deliver U.S. dollars the central bank, the country’s payment system does not have a backup that ensures long operation, so today, if a bank medium-and large-worse if into a crisis, this could spread like wildfire into a general banking crisis.
Deposit insurance is important to provide security for small depositors, often in numbers most bank customers, thus contributing to the stability of the financial system. It is also crucial to create bank resolution instruments that allow the orderly closure of troubled banks and limit the spread to other banks. Thus, if a bank becomes insolvent, the competent authority would remove shareholders and pass the deposits and good assets, the more money deposit insurance to a healthy bank, while the bad assets would go into liquidation.
It is essential that this reform is handled today, as the economy and financial system are stable. We must learn the lesson of the past, when they had to act in the midst of a crisis. For example, some bank resolution instruments already existed in the discredited AGD Act, but were never understood or used, in large part because they were born in the heat of a systemic banking crisis. The next step will be to make the new institutions work for the reform to be implemented. Furthermore, it should raise the quality of banking supervision and provide legal security to the officials who exercise so that they can act effectively and independently. Read the rest of this entry →