Presentacin de PowerPoint

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Transitional Issues in Emerging Market
Economies El Salvador Presentation for the
World Bank Ana Margoth Arévalo, Superintendence
of the Financial System El Salvador Washington,
Dec. 5th., 2003
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• Outline
• Background
• Timeframe
• Rationale for the separation.
• About the agencies
• Mechanisms of coordination
• The Central Banks Role
• An evaluation of the Process
• Final Remarks

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• Background
• Nationalization of banks and savings and loan
  associations
• The SSF, the Central Bank, and the Monetary
  Board

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• Timeframe
• Two stages
• The separation of banking supervision (The SSF)
  from the Central Bank (1990)
• The creation, almost simultaneously, of two new
  supervisory agencies the Superintendence of
  Securities (1996) and the Superintendence of
  Pensions (1996), but with different processes

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• Rationale for the separation
• The separation of the Superintendence from the
  Central Bank responded to a comprehensive reform
  program that sought to redefine the role of the
  Central Bank regarding monetary, credit and
  exchange policy and to modernize the financial
  system.
• The creation of the two new agencies were
  decisions responding to specific needs. One
  related to the development of the securities
  market, the other derived from the establishment
  of a new system of pension funds.

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• From the Central Bank to an independent agency
•  
• The 1990s reforms gave the Central Bank more
  autonomy, a new mandate, promoting financial
  stability and developing an efficient and
  competitive financial system. It could no longer
  fix interest or exchange rates nor finance,
  directly or indirectly, the government
• Financial sector reforms included reforming
  legal and institutional frameworks, restructuring
  and privatizing banks and savings and loan
  institutions, and strengthening financial
  supervision. Its new organic law gave (1990) the
  Superintendence autonomy, although it is still
  an integrated institution to the Central Bank.

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STRUCTURE OF FINANCIAL SUPERVISION
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• About the Agencies
•  
• All three are headed by a Superintendent
  appointed by the President. Two of them have a
  Board of Directors whose members are independent.
• Funding sources differ between the agencies. All
  receive funds from fees paid by supervised
  entities. However, whereas the SSF receives
  funds from the Central Bank, the rest depend on
  the general government budget .
• Regulatory schemes differ. Whereas regulation
  for banks is approved by the SSFs Board of
  Directors, that for the security market and
  pension funds must be issued by the President,
  from proposals made by the superintendencies.

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• Mechanisms of coordination
• Established by Law
• The Superintendent Committee, formed by all
  superintendents. It must consider matters such
  as adoption of supervisory criteria and
  policies, review of laws and regulations,
  coordination of financial groups supervision.
• A mandate to keep adequate mechanisms of
  communication and information sharing.

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• Mechanisms of coordination
• The possibility of establishing common
  administrative units and of outsourcing services.
• The Risk Committee, formed by the Superintendent
  Committee and the President of the Central Bank.
  Its objective is to determine investment limits
  per type of instrument, terms, and rating
  requirements for the investment of pension funds.
  It must meet at least once a year.

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• The Central Banks Role
•   Regulates the payment system, provides
  clearing and settlement services for payment
  transactions, and does a general monitoring of
  the financial system and liquidity.
•  With the implementation of the Monetary
  Integration Law in January 2001, it lost its
  role as lender-of-last-resort.
•  It does not supervise institutions. However,
  its favorable opinion is needed for, among
  others, revoking temporarily or permanently a
  bank license, updating minimum capital
  requirements or imposing additional ones.

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• The Central Banks Role
• In case of systemic risk, the decision to
  allow the Deposit Guarantee Institute to support
  restructuring a bank must have a favorable
  opinion from the Committee whose members are the
  President of the Central Bank, the head of the
  SSF, and the Finance Minister.

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• An Evaluation of the Process
• There is consensus that the agencies are now
  technically stronger, and have more supervisory
  and regulatory power. However, there were
  deficiencies in the process that led to a crisis
  which prompted a deep review of the
  Superintendences technical capacity and the
  need to assess the accuracy of the regulated
  institutions accounting records.
• The crisis made evident the need to implement
  consolidated supervision and to
  strengthen enforcement capacity of the
  superintendencies.

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• An Evaluation
• Administrative cost of supervision is higher as
  is the transaction cost for the regulated
  institutions. 
•  
• There are also issues regarding regulatory
  arbitrage
• More important is the need to increase protection
  for supervisors so that they effectively carry
  out their responsibilities
•  

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• Final Remarks
•  
• Regulators and supervisors in El Salvador are
  very aware of the importance of realizing a
  comprehensive consolidated supervision of
  financial conglomerates, and of the need of
  cooperating and sharing information effectively
  and efficiently among them.
• Presently, a program is being develop to
  strengthen their technical capacities and to
  refine cooperation and coordination arrangements
  between them.