Towards an Effective Regulatory and Supervisory Framework for Latin America

Liliana Rojas-Suarez and Steven R. Weisbrod

No 4050, Research Department Publications from Inter-American Development Bank, Research Department

Abstract: This paper raises fundamental questions about how banks in Latin America ought to be supervised. The concentration of wealth holders in Latin America and the equity markets` resulting illiquidity permit investors who control banks to subvert the intent of capital requirements, even when the bank itself is subject to rigorous accounting standards. A number of policy implications follow from the analysis. Three of policy recommendations derived from this analysis can be successfully implemented in the short run. Latin American supervisors should focus on: improving the markets that already work in Latin America, which currently are markets for bank liabilities; severely limiting public safety nets for bank liabilities so that risky banks face a high price for raising liabilities; and encouraging macroeconomic policies to play a much more important role in restraining bank risk in Latin America than in the industrial countries.

Date: 1997-02
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Citations: View citations in EconPapers (3)

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Working Paper: Towards an Effective Regulatory and Supervisory Framework for Latin America (1996)
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