Latin American Banking Conference Discusses Crisis Management
During the past 30 years, Latin America has experienced banking crises at a rate three times higher than any other region. Banking crises can have devastating economic implications and can weaken the balance sheets of both banks and borrowers. “Toward Better Banking in Latin America,” a conference cohosted in September by the Federal Reserve Bank of Atlanta and the Inter-American Development Bank, brought together policy experts and economists to discuss ways to strengthen the region’s banking systems.
Thinking globally, acting locally
After a series of banking crises in the 1980s and ’90s, Latin American countries have adopted international standards aimed at limiting the scope and frequency of these crises. Some scholars suggest that microprudential regulation—managing the difficulties of individual banks—should be complemented by macroprudential approaches that manage a more widespread banking crisis. These dual approaches were part of the focus of the conference.
One panel discussed the recommendations of the Basel II banking accords and their implications for policymakers. Of particular concern—and a topic of considerable controversy—was the extent to which such regulations can play a role in either countering or exacerbating crises.
A second panel discussed the extent to which more stringent anti–money laundering measures, particularly those concentrating on the financing of criminal groups and improved disclosure, have been effective in curtailing money laundering.
Regulation, creativity must coexist
In the keynote speech, Raghuram Rajan, director of research at the International Monetary Fund, focused on the relationship between evolving global financial markets and volatility. While regulation is important, he believes it should not stifle the creativity and innovation of the markets.
A roundtable whose participants included current and past central bankers from Argentina, Chile, and Peru discussed foreign banks’ role in the region’s financial systems and the future of the region’s state-owned banks. The panelists agreed that regulation needs to balance a bank’s viability with the normal fluctuations of the business cycle. They also cited a strengthened role for bank boards as a better method of managing an institution’s risk.
This article was written by Stephen Kay of the Atlanta Fed’s Americas Center.