Banking Regulation and Policy Recommendations for Chile
Abstract/Contents
- Abstract
- The purpose of this document is to discuss risks that affect financial institutions, in particular banks, and to make policy recommendations related to Chilean Banks General Law. Though most industries exhibit equity over assets ratios above 35%, banks show in general levels below 10%. Deposit insurance and bailout promises are explicit and implicit subsidies, respectively, that allow banks to obtain cheap debt and to hold lower equity ratios than those that they would hold without those subsidies. The Basel Accords have been international attempts to improve banking soundness, but capital requirements have been set at insufficient levels to prevent generalized banking distress. During the subprime mortgage crisis, poorly capitalized financial institutions were unable to cope with generalized house-price drops and massive mortgage failures. Chilean banks were not affected by the financial crisis, in part because of their low dependency on external debt and low exposure to complex securities. The Chilean Congress is discussing a new Banking Law that will fully adopt the Basel III accords. Our proposal is to include an equity over assets requirement of 9%, which is equivalent to the current average of Chilean banks. Setting a higher capitalization means a guarantee that banks’ solvency will not fall below current levels. It would place Chile at the international vanguard of banking regulation.
Description
| Type of resource | text |
|---|---|
| Date created | December 15, 2017 |
Creators/Contributors
| Author | Risopatron, Francisco Matte |
|---|---|
| Advisor | Admati, Anat Ruth |
| Degree granting institution | Stanford University, Public Policy Program |
Subjects
| Subject | Stanford University |
|---|---|
| Subject | Humanities and Sciences |
| Subject | Public Policy Program |
| Subject | banks |
| Subject | capital regulation |
| Subject | Basel accords |
| Subject | solvency |
| Subject | insolvency risk |
| Subject | equity over assets ratio |
| Subject | leverage ratio |
| Subject | risk weighted assets |
| Subject | subprime mortgage crisis |
| Subject | financial crisis |
| Subject | Chilean Banking Law |
| Genre | Thesis |
Bibliographic information
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- This work is licensed under a Creative Commons Attribution 3.0 Unported license (CC BY).
Collection
Stanford University, Public Policy Program, Masters Theses and Practicum Projects
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- Contact
- francisco.matte.r@gmail.com
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