## 1chlea2020002 - Preface

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### Mission and purpose and activities
- Mission dates: December 11 to 19, 2018.
- Mission team: Darryl King (mission chief), Mark Buessing-Loercks, and Froukelien Wendt.
- Purpose: support the Banco Central de Chile (BCCh) in developing a policy for the provision of selected central bank services, including emergency liquidity assistance (ELA), to nonbank financial institutions (NBFIs).
- Activities:
  - Reviewed BCCh policies on access to payment services, ELA, intraday and overnight liquidity, and the deposit facility for Nonbanks.
  - Conducted benchmark exercise focusing on Australia, the Euro Area, Mexico, Switzerland, the United Kingdom, and the United States.
  - Developed an assessment framework to evaluate impacts on: monetary policy implementation; financial stability; economic efficiency and market neutrality; operational costs and risks for the central bank.
  - Applied the assessment framework to Chile’s financial sector and provided recommendations for different types of NBFIs.
  - Met with BCCh board members and senior management and key staff of CMF; SBIF; ComBanc; CCPs ComDer and CCLV; DCV; and representatives from banks, brokers, mutual funds, and the largest credit union.

### Executive summary — key points and current access
- Services under consideration for broader access:
  - settlement accounts,
  - intra-day liquidity,
  - standing deposit and lending facilities,
  - eligibility for ELA.
- Current access:
  - Banks: access to all services.
  - CCPs and the Securities Settlement System (SSS): access to a settlement account since 2009, but not to liquidity operations.
- Emphasis: all central bank counterparts must be adequately regulated and supervised to mitigate operational, financial, and reputational risks.
- Regulatory change noted: consolidation of SBIF into CMF should facilitate equal treatment across participants and reduce regulatory arbitrage, easing coordination between BCCh and authorities on financial stability.

### Assessment framework (overview)
- Four assessment categories:
  1. monetary policy implementation;
  2. financial stability;
  3. economic efficiency and market neutrality;
  4. operational costs and risks for the central bank.
- Framework includes minimum requirements related to regulation, supervision, and oversight.
- Overall assessment requires judgment to weigh tradeoffs across criteria and is informed by international practices.

### Key recommendations (high-level)
- General:
  - Some minor broadening of NBFI access recommended.
  - BCCh should have the power to provide liquidity to any Nonbank financial sector (sector-wide eligibility) to contain spillovers that may threaten financial stability.
- FMIs / CCPs:
  - Support current access to a settlement account.
  - Extend BCCh oversight to include CCPs and step up coordination with CMF.
  - CCPs should have access to liquidity at BCCh discretion (an ELA-type arrangement rather than a standing lending facility).
  - CCPs should have access to a remunerated deposit facility to promote a level playing field where they face competition from offshore CCPs.
- OTC bond settlement:
  - Promote safer settlements for OTC-traded bonds; consider providing the CSD with a settlement account to support DVP model 1 settlements, with gross settlement of the cash leg in the RTGS system.
- Nonbank payment service providers:
  - Consider allowing access to a settlement account subject to appropriate oversight.
- Credit Unions (CUs):
  - Provide access to full range of BCCh services to CUs that: (i) meet bank-like regulation including governance; (ii) compete across a broad range of banking products; (iii) are of sufficient size.
  - The largest CU (Coopeuch) may merit access to all central bank services; detailed policy position needed using criteria such as asset size, customer base, and product range.
- Broker-dealers:
  - Provide settlement account access once regulation and supervision are robust (in consultation with CMF).
  - Do not provide broker-dealers access to liquidity operations at this stage.
- Mutual funds, insurance companies, pension funds:
  - Recommend none of these sectors be granted access to BCCh services.

### Selected action items (Table 1 entries) — priority and time frame
- Establish an access policy for different NBFI sectors using the assessment framework (BCCh). Priority: High. Time frame: Short.
- Ensure application of minimum regulatory requirements for all central bank counterparts (BCCh, CMF). Priority: High. Time frame: Medium.
- Modify the Organic Law of the BCCh to allow provision of facilities/ELA to NBFIs in line with recommendations (BCCh). Priority: High. Time frame: Medium.
- Establish an ELA-type arrangement (not a facility) for CCPs (BCCh). Priority: High. Time frame: Medium.
- Provide CCPs with access to a remunerated deposit facility (BCCh). Priority: High. Time frame: Medium.
- Strengthen settlement of OTC-traded bonds supporting DVP model 1 with gross cash settlement in the RTGS system (BCCh, CMF). Priority: Medium. Time frame: Medium.
- Consider providing DCV with a settlement account to facilitate instantaneous gross settlements (BCCh, CMF). Priority: Medium. Time frame: Medium.
- Consider providing Nonbank payment service providers with a settlement account in the RTGS system (BCCh). Priority: Low. Time frame: Medium.
- Provide broker-dealers settlement accounts if adequately regulated and supervised by the CMF (BCCh, CMF). Priority: High. Time frame: Medium.
- Develop and communicate a policy for CUs that meet bank-like regulation to have access to the full range of BCCh services (BCCh). Priority: Medium. Time frame: Medium.
- Time frame definitions: Short term: < 12 months; Medium term: 12 to 24 months.

### Chile financial system — structure and key statistics
- Nonbank sector share: 50 percent of assets.
- Banking concentration: Six banks account for 90 percent of banking sector assets.
- Equity market capitalization: 93 percent of Gross Domestic Product.
- Broker-dealers: total 32; majority bank-owned: 15.
  - Largest broker-dealer: subsidiary of Banco del Estado de Chile with 40 percent market share.
  - Second largest (independent) broker-dealer: 15 percent market share.
- FMIs and settlement:
  - Large value payments settled in RTGS operated by BCCh, or through ComBanc with ultimate settlement in RTGS.
  - RTGS and ComBanc only allow banks as participants.
  - CCPs: CCLV (equities, exchange-traded derivatives) and ComDer (OTC derivatives).
  - CCLV provides SSS services for fixed income and money market instruments.
  - ComBanc coordinates DVP for government securities; DCV acts as CSD for all securities.
- Monetary policy framework:
  - BCCh maintains an inflation-targeting framework centered on a three percent target.
  - Operational target: overnight unsecured interbank rate, set in the middle of a 50 basis-point-wide interest rate corridor.
    - Corridor ceiling: Standing Lending Facility (SLF).
    - Corridor floor: Standing Deposit Facility (SDF).
- Reserve requirements:
  - 9 percent on demand deposits.
  - 3.6 percent on savings and term deposits (required on all local and foreign currency deposits).
  - Compliance measured on average over the maintenance period of one month using settlement account balances and vault cash.
- BCCh balance sheet (as at December 31, 2017) (In USD millions):
  - Assets:
    - Foreign assets 24,101
    - Domestic assets 839
    - Other assets 58
    - Total Assets 24,998
  - Liabilities:
    - Foreign liabilities 769
    - Currency 8,970
    - Bank reserves 2,136
    - Other obligations 4,046
    - BCCH notes 14,837
    - Other liabilities 23
    - Net equity (5,783)
    - Total liabilities 24,998

### Regulation, supervision, and coordination
- Regulatory consolidation: integration of CMF and SBIF effective post-mission—June 1, 2019.
- CMF responsibilities: prudential supervision, market conduct, and surveillance of all financial institutions except pension funds; regulates and supervises insurance companies, securities issuers, fund managers, broker-dealers, and FMIs.
- BCCh responsibilities: RTGS operations, regulation of ComBanc and retail payment systems, and consultative regulatory responsibilities for CCPs and pension funds.
- Other authorities:
  - Superintendence of Pensions (SP): supervises pension system.
  - Ministry of Economy: supervises smaller credit unions (capital below US$ 15 million).
- Coordination mechanisms:
  - Financial Sector Supervisory Committee: cooperation among SP and CMF (BCCh observer).
  - Financial Stability Board: coordination on financial stability and macro-prudential policies.

### Assessment framework — detailed considerations
- Foundational requirement: all central bank counterparts must comply with “appropriate” regulations; where the central bank is not the supervisor, close coordination is required.
- Four assessment criteria applied to each NBFI sector:
  1. Impact on monetary policy implementation (stability of demand for liquidity; forecasting; transmission of interest rate signals; market functioning in stress).
  2. Impact on financial stability (interconnectedness; moral hazard; systemic risk amplification).
  3. Impact on economic efficiency and market neutrality (competition with private sector; incentives for innovation).
  4. Impact on operational costs and risks for the central bank (infrastructure, oversight, collateral management, financial and reputational risk).

### Sector recommendations and assessments (summarized)
- Financial Market Infrastructures — CCPs:
  - Recommended: settlement account (RTGS) access; access to intraday liquidity recommended? source shows mixed recommendations by service.
  - Mission recommends: discretionary ELA for CCPs; remunerated deposit facility; do not grant standing lending facility.
  - Preconditions: CCPs must be subject to strong regulation, supervision, and oversight before liquidity and remunerated deposit services are provided.
  - BCCh resource implication: oversight requires 1–2 dedicated specialists; develop rules/procedures for SDF and ELA provision; intensify cooperation with CMF (preferably MOU).
  - Qualitative recommendation matrix (symbols preserved): RTGS: ; Intraday credit: X; SDF: ; SLF: X; ELA: . Assessment indicators—Monetary policy: - / 0 / - / - / - ; Financial stability: 0 / 0 / + / - / ++ ; Economic efficiency/neutrality: + / 0 / ++ / 0 / ++ ; Operational costs/risks: - / - / - / - / -.
- Central Securities Depositories (CSDs):
  - Recommendation: grant settlement account and RTGS access; do not grant intraday liquidity, standing deposit facility, standing lending facility, or ELA.
  - Strengthen OTC-traded bond settlement: move to DVP model 1 with gross settlement of the cash leg in the RTGS system; coordinate through DCV where appropriate.
  - Qualitative recommendation matrix: RTGS: ; Intraday credit: X; SDF: X; SLF: X; ELA: X. Assessment indicators—Monetary policy: 0 / 0 / 0 / 0 / 0 ; Financial stability: + / 0 / 0 / 0 / 0 ; Economic efficiency/neutrality: + / 0 / 0 / 0 / 0 ; Operational costs/risks: - / - / - / - / -.
- Nonbank payment service providers:
  - Recommendation: consider settlement account access (RTGS) for providers that would settle a potentially large volume of payments; do not grant intraday credit, SDF, SLF, or ELA.
  - Require expanded payment system oversight for such providers.
  - Qualitative recommendation matrix: RTGS: ; Intraday credit: X; SDF: X; SLF: X; ELA: X. Assessment indicators—Monetary policy: 0 / 0 / 0 / 0 / 0 ; Financial stability: 0 / 0 / 0 / 0 / 0 ; Economic efficiency/neutrality: ++ / 0 / 0 / 0 / 0 ; Operational costs/risks: - / - / - / - / -.
- Credit Unions (CUs):
  - Recommendation: grant full range of central bank services to CUs that meet bank-like regulation/supervision and thresholds for asset size, customer base, geographic reach, and product range.
  - Coopeuch specifics:
    - Accounts for 82 percent of the CU sector.
    - Regulated similarly to banks, internationally rated, competes across a range of financial services.
    - Has 7 percent of the population as members.
    - By asset size, would be the fourteenth largest of twenty banks if it were a bank.
  - Where a CU meets thresholds, consider granting access to BCCh open market operations.
  - Summary recommendation matrix (subject to policy development): RTGS, Intraday credit, SDF, SLF, ELA: “”. Monetary policy, Financial stability, Economic efficiency/neutrality: “+”. Operational costs/risks: “-”.
- Broker-dealers:
  - Recommendation: allow settlement account access once regulation/supervision are adequate; do not grant intraday credit, SDF, SLF, or ELA.
  - Future access to BCCh liquidity/ELA would require bank-equivalent capital, liquidity and leverage regulation, and a systemic test.
  - Summary recommendation matrix: RTGS: “”; Intraday credit, SDF, SLF, ELA: “X”.
- Mutual funds:
  - Recommendation: do not allow mutual funds access to BCCh services (RTGS, Intraday credit, SDF, SLF, ELA all “X”).
  - Mutual funds in Chile: 42 percent of assets under management are money market funds.
  - Suggested supervisory/market tools: regulation, communication of liquidity risks, liquidity management tools (gates, fees, swing-pricing, suspension of redemptions).
- Insurance companies and pension funds:
  - Recommendation: do not grant access to BCCh services (RTGS, Intraday credit, SDF, SLF, ELA all “X”).
  - Mission supports BCCh powers to provide sector-wide support where liquidity pressures amplify contagion risk.

### Financial stability, moral hazard, and ELA considerations
- Access to central bank liquidity may incentivize greater risk-taking (moral hazard) by CCPs (examples: reducing margin requirements, lowering collateral standards, seeking higher returns on invested cash collateral).
- Wrong-way risk defined: exposure to a counterparty is highly likely to increase when the creditworthiness of that counterparty is deteriorating.
- Balancing act: financial stability benefits of granting ELA versus moral hazard; containment via adequate regulation and supervision is essential.
- ELA policy design: the mission favors discretionary, ELA-type arrangements for CCPs rather than standing facilities to limit moral hazard.

### Sector-wide liquidity provision
- Recommendation: BCCh should have powers to intervene with sector-wide liquidity provision even when individual institutions are not granted direct access to BCCh services.
- Rationale: sector-wide powers enable addressing systemic liquidity risks in a sector and stopping spillovers; BCCh should also have power to directly intervene in key securities markets under severe stress.
- Legal/policy context example: Under Federal Reserve Act s13(3), the central bank cannot lend to individual NBFIs but can “...discount for any participant in any program or facility with broad-based eligibility....” Broad-based eligibility has been defined as eligibility of five or more institutions.

*Source: IMF mission report — Preface and Executive Summary (1chlea2020002 - Preface).*

### Preface ................................................................................................................

### 1chlea2020002 - Preface

### Mission and purpose
- A Monetary and Capital Markets Department mission visited Santiago from December 11 to 19, 2018.
- The mission comprised Darryl King (mission chief), Mark Buessing-Loercks, and Froukelien Wendt.
- Purpose: support the Banco Central de Chile (BCCh) in developing a policy for the provision of selected central bank services, including emergency liquidity assistance (ELA), to nonbank financial institutions (NBFIs).

### Mission activities
- Reviewed current BCCh policies on access to payment services, ELA, intraday and overnight liquidity, and the deposit facility for Nonbanks.
- Conducted a benchmark exercise focusing on Australia, the Euro Area, Mexico, Switzerland, the United Kingdom, and the United States.
- Developed an assessment framework to evaluate impacts on:
  - monetary policy implementation,
  - financial stability,
  - economic efficiency and market neutrality,
  - operational costs and risks for the central bank.
- Applied the assessment framework to Chile’s financial sector and provided recommendations for different types of NBFIs.
- Met with BCCh’s board members and senior management and key staff of the Financial Markets Commission (CMF); Superintendence of Banks and Financial Institutions (SBIF); deferred settlement system provider ComBanc; CCPs ComDer and CCLV; Depósito Central de Valores S.A. (DCV); representatives from banks, brokers, mutual funds, and the largest credit union.

### Executive summary — key points
- BCCh is considering broadening access to its services beyond commercial banks and some Financial Market Infrastructures (FMIs). Services considered include:
  - settlement accounts,
  - intra-day liquidity,
  - standing deposit and lending facilities,
  - eligibility for ELA.
- Current access:
  - Banks have access to all these services.
  - CCPs and the Securities Settlement System (SSS) were granted access to a settlement account in 2009, but not to liquidity operations.
- The mission emphasized that all central bank counterparts must be adequately regulated and supervised to mitigate operational, financial, and reputational risks.
- Recent changes to banking law facilitating consolidation of SBIF into CMF should:
  - facilitate equal treatment across participants,
  - reduce the prospect of regulatory arbitrage,
  - ease, though not eliminate, coordination efforts between BCCh and authorities on financial stability.

### Assessment framework
- Four assessment categories (criteria) closely related to the central bank’s mandate:
  - (1) monetary policy implementation;
  - (2) financial stability;
  - (3) economic efficiency and market neutrality;
  - (4) operational costs and risks for the central bank.
- The framework incorporates minimum requirements related to regulation, supervision, and oversight.
- An overall assessment requires judgment to weigh tradeoffs across criteria.
- International practices were surveyed to inform the framework and reasons for central banks to provide facilities to NBFIs.

### Main recommendations by NBFI type
- General
  - The mission recommended some minor broadening of NBFI access to BCCh services.
  - BCCh should have the power to provide liquidity to any Nonbank financial sector (sector-wide eligibility) to contain spillovers that may threaten financial stability.

- Financial Market Infrastructures (FMIs)
  - For CCPs:
    - Support current access to a settlement account.
    - Extend BCCh oversight to include CCPs and step up coordination with CMF.
    - CCPs should have access to liquidity at the discretion of the BCCh (an ELA-type arrangement rather than a standing lending facility).
    - CCPs should have access to a remunerated deposit facility to promote a level playing field where they face competition from offshore CCPs.
  - Promote safer settlements for OTC-traded bonds; consider providing the central securities depository (CSD) with a settlement account to support DVP model 1 settlements, with gross settlement of the cash leg in the RTGS system.
  - Consider allowing Nonbank payment service providers (subject to appropriate oversight) access to a settlement account to foster innovation.

- Nonbank deposit-taking institutions (Credit Unions, CUs)
  - Provide access to the full range of BCCh services to CUs that:
    - (i) meet bank-like regulation, including for governance standards;
    - (ii) compete across a broad range of banking products;
    - (iii) are of a sufficient size.
  - The largest CU (Coopeuch) may merit access to all central bank services, but a detailed policy position (e.g., based on asset size, customer base, and product range) is needed to demarcate eligibility.

- Broker-Dealers
  - Provide broker-dealers access to settlement accounts once regulation and supervision are sufficiently robust (in consultation with CMF).
  - Do not provide broker-dealers access to liquidity operations at this stage, as this may incentivize greater risk taking.
  - Future access to liquidity operations would require bank-equivalent capital, liquidity and leverage regulation, and a systemic test.

- Mutual Funds, Insurance Companies, and Pension Funds
  - Recommend that none of these sectors be granted access to BCCh services, consistent with international practices, because they are users (not providers) of payment services.
  - Granting access would risk crowding out private sector innovation and increase operational costs and risks for the central bank.

### Key recommendations (Table 1) — selected entries
- Establish an access policy for different NBFI sectors on the basis of an assessment framework that uses specific criteria for measuring the costs and benefits of the provision of services (BCCh). Priority: High. Time frame: Short.
- Ensure, without exception, the application of minimum regulatory requirements (i.e., all central bank counterparts must comply with appropriate regulations through adequate supervision) (BCCh, CMF). Priority: High. Time frame: Medium.
- Modify the Organic Law of the BCCh to allow for the provision of facilities/ELA to NBFIs in line with the recommendations below (BCCh). Priority: High. Time frame: Medium.
- Establish an ELA-type arrangement (not a facility) for CCPs (BCCh). Priority: High. Time frame: Medium.
- Provide the CCPs with access to a remunerated deposit facility to enhance a level playing field (BCCh). Priority: High. Time frame: Medium.
- Strengthen settlement of OTC-traded bonds by supporting DVP model 1 settlements, with gross settlement of the cash leg in the RTGS system (BCCh, CMF). Priority: Medium. Time frame: Medium.
- Consider provision of a settlement account to DCV to facilitate instantaneous gross settlements, coordinated by DCV (BCCh, CMF). Priority: Medium. Time frame: Medium.
- Consider providing (new) Nonbank payment service providers with access to a settlement account in the RTGS system (BCCh). Priority: Low. Time frame: Medium.
- Provide broker-dealers with access to settlement accounts provided they are adequately regulated and supervised by the CMF (BCCh, CMF). Priority: High. Time frame: Medium.
- Develop and communicate a policy for CUs that meet bank-like regulation (and other specified criteria) to have access to the full range of BCCh services. Priority: Medium. Time frame: Medium.

Short term: < 12 months; Medium term: 12 to 24 months.
The time frame is an estimate of how long it would take to prepare legislation. It is noted that the pace may be beyond the control of the BCCh.

### Introduction — mandate, coordination, and current access
- The Organic Law of the BCCh specifies the central bank mandate as “…to look after the stability of the currency and the normal functioning of internal and external payments systems.” Broadly interpreted, BCCh has both price stability and financial stability objectives.
- BCCh manages system liquidity through standing facilities and the provision of ELA and provides access to settlement accounts in its real time gross settlement (RTGS) system.
- BCCh coordinates on financial stability issues through the Financial Stability Board (Consejo de Estabilidad Financiera) and publishes a semi-annual Financial Stability Report; other institutions on the Board include the Ministry of Finance, the CMF, the SBIF, and the Superintendence of Pensions (SP).
- Table 2 (Overview of Central Bank Facilities and Benefits) summarizes:
  - Access to the payment system: direct settlement account in RTGS system. Benefits: central bank money is safe settlement asset; efficient through economies of scale; central bank is neutral operator; operational integrity; supports monetary policy operations. Eligible institutions in Chile: Banks, CCPs (ComDer and CCLV), SSS (CCLV).
  - Intraday liquidity: facilitates settlement efficiency and reduces gridlock; backstops liquidity conditions (minimizes need for buffers). Eligible institutions: Banks.
  - Standing Deposit Facility (SDF): monetary policy implementation (floor); safe deposit of cash without counterparty risks. Eligible institutions: Banks.
  - Standing Lending Facility (SLF): monetary policy implementation (ceiling); backstops liquidity conditions (minimizes need for liquidity buffers). Eligible institutions: Banks.
- BCCh’s services are limited to banks, with the exception of CCPs and the SSS which have access to the payment system but not to liquidity operations. CCPs can deposit cash overnight in unremunerated settlement accounts. Only banks have access to intraday liquidity and to SDF and SLF.
- BCCh can extend ELA only to banks and has not done so since the mid-1980s. BCCh can dictate terms and conditions for granting ELA, including collateral eligibility, but internal policies and procedures appear at an early stage of development. The Ministry of Finance has no role and does not indemnify the BCCh for any losses from ELA.

### Drivers for policy review and report objective
- Market demands and international trends: Various NBFIs (notably CCPs, mutual funds, broker-dealers, and the largest credit union Coopeuch) have requested access to central bank services.
- Objective of report: support BCCh in evaluating whether NBFIs should have access to various services and be eligible for ELA, applying the four assessment criteria and surveying international practices and relevant IMF policies and standards.
- The mission also assessed BCCh powers to provide sector-wide liquidity support to NBFIs in systemic events, including support to securities markets.

*Source: IMF mission report — Preface and Executive Summary (1chlea2020002 - Preface).*

### 7. This report is set up as follows: Section II describes Chile’s financial system; Section III

### 7. This report is set up as follows: Section II describes Chile’s financial system; Section III

### II. Description of Chile’s financial system — Structure
- The financial sector in Chile has more than doubled over the last ten years and is well-diversified, with the nonbank sector accounting for 50 percent of assets (Figure 1).
- Banking sector concentration:
  - Six banks—one state bank, two large private banks, and three foreign owned banks—account for 90 percent of banking sector assets.
- Capital markets:
  - Equity market capitalization is equivalent to 93 percent of Gross Domestic Product.
- Monetary policy framework:
  - The BCCh has a credible inflation targeting framework, successfully keeping inflation close to its three percent target.
- Broker-dealers:
  - Total broker-dealers: 32.
  - Majority bank-owned broker-dealers: 15.
  - Largest broker-dealer is a subsidiary of Banco del Estado de Chile and has 40 percent market share.
  - Second largest broker-dealer (independent) has 15 percent market share.
- Financial market infrastructures (FMIs):
  - Large value payments settled in the Sistema Liquidación Bruta en Tiempo Real—the Real-Time Gross Settlement System (RTGS)—operated by BCCh, or through ComBanc (deferred net settlement) with ultimate settlement in RTGS.
  - Both the RTGS system and ComBanc only allow banks as participants.
  - CCP services: CCLV for equities and exchange-traded derivatives; ComDer for OTC derivatives.
  - CCLV provides SSS services for fixed income and money market instruments.
  - ComBanc coordinates delivery-versus-payment (DVP) for government securities; government bonds can be settled through ComBanc or directly in the RTGS system.
  - DCV acts as CSD for all securities.
- Reference: Appendix I provides an overview of the FMI landscape in Chile.

### II. Description of Chile’s financial system — Monetary Policy Context (Box 1)
- BCCh mandate interpretation: maintaining price stability via an inflation-targeting framework.
- Two unusual features of BCCh:
  - It operates with negative capital.
  - It does not hold, and nor is it allowed to by the constitution, any government securities.
- Operational target:
  - Overnight unsecured interbank rate, set in the middle of a 50 basis-point-wide interest rate corridor.
  - Corridor ceiling: Standing Lending Facility (SLF).
  - Corridor floor: Standing Deposit Facility (SDF).
- Reserve requirements:
  - 9 percent on demand deposits.
  - 3.6 percent on savings and term deposits (required on all local and foreign currency deposits).
  - Compliance: on average over the maintenance period of one month using settlement account balances and vault cash.
- Government operational account:
  - Held at a commercial bank (Banco Estado); most government flows impact the distribution of liquidity but not aggregate supply.
- BCCh balance sheet (as at December 31, 2017) (In USD millions):
  - Assets:
    - Foreign assets 24,101
    - Domestic assets 839
    - Other assets 58
    - Total Assets 24,998
  - Liabilities:
    - Foreign liabilities 769
    - Currency 8,970
    - Bank reserves 2,136
    - Other obligations 4,046
    - BCCH notes 14,837
    - Other liabilities 23
    - Net equity (5,783)
    - Total liabilities 24,998

### II. Description of Chile’s financial system — Regulation and Supervision
- Regulatory consolidation:
  - Chile’s regulatory and supervisory architecture was streamlined through the integration of the CMF and the SBIF. The integration was effective post-mission—June 1, 2019.
  - Objective: improve supervision through better coordination and a more inclusive perspective over financial markets and supervised institutions (including conglomerates).
- CMF responsibilities:
  - Prudential supervision, market conduct, and surveillance of all financial institutions, except pension funds.
  - Regulates and supervises insurance companies, securities issuers, fund managers, broker-dealers, and FMIs (the SSS, the two domestic CCPs, and the CSD).
  - Supervises banks, larger credit unions, credit card issuers, and oversees ComBanc and retail payment systems.
- Other authorities:
  - BCCh: regulatory responsibilities for banking sector operations related to RTGS, regulation of ComBanc and retail payment systems, and consultative regulatory responsibilities for CCPs and pension funds.
  - Superintendence of Pensions (SP): supervises the pension system (pension funds and some social security benefits).
  - Ministry of Economy: supervises smaller credit unions (capital below US$ 15 million) and governance in all credit unions.
  - Family Compensation Funds supervised by the Social Security Superintendence.
- Coordination mechanisms:
  - Financial Sector Supervisory Committee: cooperation and information exchange among SP and CMF (BCCh with observer status) on micro-prudential regulatory and supervisory developments.
  - Financial Stability Board: facilitates coordination on financial stability and macro-prudential policies.

### III. Assessment framework — Overview
- Framework origin:
  - Based on international practices, IMF Financial Sector Assessment Program reports and policies, Committee on Payment and Settlement Systems “The Role of Central Bank Money in Payment Systems” (August 2003), and a survey of global practices (Appendix II).
- Foundational requirement:
  - All central bank counterparts must comply with “appropriate” regulations to mitigate financial, operational, and reputational risks. Where the central bank is not the supervisor, close coordination with supervisors is required.
- Four assessment criteria (used to evaluate provision of central bank services to NBFI sectors):
  1. Impact on monetary policy implementation.
  2. Impact on financial stability.
  3. Impact on economic efficiency and market neutrality.
  4. Impact on operational costs and risks of the central bank.

### III. Assessment framework — Impact on Monetary Policy Implementation
- Key monetary policy considerations:
  - Alignment of market interest rates with the announced monetary policy rate requires:
    - Stable demand for central bank liquidity.
    - Markets that function smoothly.
    - A well-articulated and consistently applied operational framework and efficient FMIs.
  - Questions to assess NBFI access:
    - Impact on stability of demand for central bank liquidity.
    - Impact on central bank’s ability to forecast such demand.
    - Impact on transmission of interest rate signals through the financial system.
    - Support for functioning of financial markets during periods of stress.

### III. Assessment framework — Impact on Financial Stability
- Risks from extending services to NBFIs:
  - Increased interconnectedness: entities without direct payments system access hold precautionary balances with other participants, amplifying shock transmission.
  - Increased risk-taking and moral hazard: provision of liquidity facilities may increase incentives to take on risk, relevant for ELA eligibility.

### III. Assessment framework — Impact on Economic Efficiency and Market Neutrality
- Central bank operations should support economic efficiency and be neutral between participants.
- Risks if central bank competes with private sector:
  - Undermining incentives for participation and innovation if services are priced to crowd out private provision.
  - Offering artificially low rates at standing facilities to a wide range of counterparties could undermine market development and liquidity risk management incentives.
- Potential benefits:
  - Allow access to innovative counterparties (subject to appropriate regulation/supervision) to promote competition and efficiency.
  - Neutrality should be sought, but central bank provisioning may produce externalities that increase welfare (e.g., reducing systemic risk).

### III. Assessment framework — Impact on Operational Costs and Risks for the Central Bank
- Operational cost and risk considerations:
  - Increasing number/type of entities with access likely raises operational costs and risks.
  - Infrastructure upgrades may be required, though systems are often scalable and marginal transactional costs could be low.
  - Oversight costs increase with more counterparties; broader liquidity provision raises collateral management costs.
  - Financial and reputational risks rise when liquidity is provided.

### IV. Assessment and recommendations — Summary
- The assessment framework is applied to Chile to form policy positions on BCCh services to various NBFIs, taking into account the BCCh mandate and other objectives.
- Table 3 summarizes recommendations (source: IMF staff). Key recommendations summarized:
  - Financial Market Infrastructures — CCPs:
    - Recommendation to grant a settlement account.
    - Recommendation to grant access to RTGS and access to intraday liquidity.
    - Recommendation not to grant access to standing deposit facility.
    - Recommendation not to grant access to standing lending facility.
    - Recommendation to permit ELA (access to central bank liquidity) for CCPs.
  - Financial Market Infrastructures — CSD:
    - Recommendation to grant a settlement account.
    - Recommendation to grant access to RTGS.
    - Recommendation not to grant access to intraday liquidity, standing deposit facility, standing lending facility, or ELA.
  - Financial Market Infrastructures — Other (Fintech):
    - Recommendation to grant a settlement account.
    - Recommendation to grant access to RTGS.
    - Recommendation not to grant access to intraday liquidity, standing deposit facility, standing lending facility, or ELA.
  - Nonbank deposit takers (credit unions):
    - Below set thresholds of regulation/size/other: do not grant access to settlement account or services.
    - Above set thresholds of regulation/size/other: grant access to settlement account and standing facilities (including standing deposit facility and standing lending facility) and ELA where appropriate.
  - Broker-dealers:
    - Recommendation to grant settlement account.
    - Recommendation not to grant access to standing deposit facility, standing lending facility, or ELA.
  - Mutual funds / Insurance companies / Pension funds:
    - Recommendation not to grant settlement account access, standing facilities, RTGS/intraday liquidity access, or ELA.
- Note: “” represented recommendations to grant access and “X” represented recommendations not to grant access in the original Table 3.

### IV.A Financial Market Infrastructures — Central Counterparties (CCPs)
- General context:
  - CCPs provide safety and efficiency by interposing between counterparties, becoming buyer to every seller and seller to every buyer, and guaranteeing performance of contracts.
  - CCPs concentrate risks; their benefits depend on sound risk management.
  - Failures to absorb losses from participant defaults can amplify or cause systemic disruptions.
  - Margin calls and haircutting practices can be pro-cyclical and act as macro-financial feedback mechanisms during stress.
- Monetary policy implementation implications:
  - Broad CCP access to central bank facilities could undermine the BCCh’s ability to forecast banking system liquidity.
  - Impact is limited if settlement account is used only for intraday settlements with a zero overnight balance.
  - Greater impact arises if CCPs use accounts for overnight deposits or have access to standing lending facilities, potentially causing volatility in CCP cash deposits and forecasting errors.
  - Granting CCPs eligibility to ELA may improve monetary policy implementation if it reduces risks of fire sales of financial assets.
- Financial stability implications:
  - Settlement accounts for CCPs reduce interconnectedness with correspondent banks and allow CCPs to pay/receive margins directly from participants.
  - Settlement accounts can facilitate DVP settlements, though not strictly necessary.
  - CCPs holding cash collateral at commercial banks face counterparty and “wrong-way” risk; placing cash collateral at a central bank account is the safest option to ensure access to collateral in stress.
  - Access to central bank liquidity (ELA) is beneficial:
    - CCPs may face significant liquidity needs when participants default, needing to make cash payments to non-defaulting counterparties.
    - If resources are held in securities, CCPs may need to convert securities to cash via sales, repos, or collateralization to draw on commercial credit lines; in extreme circumstances these channels may be unavailable.
    - Access to central bank liquidity would ensure continued operation of CCPs and thus support financial stability.

*Source: IMF staff, based on the content of the provided chapter.*

### 28. The financial stability benefits of granting ELA should be balanced against the risk

### 28. The financial stability benefits of granting ELA should be balanced against the risk of moral hazard

### Financial stability and moral hazard
- Access to central bank liquidity may incentivize CCPs to take greater risks because they are shielded from the negative consequences of those risks at the taxpayers’ expense (paragraph 28).
- Examples of risk-taking incentives for CCPs include reducing margin requirements, lowering collateral standards in competitive environments, and seeking higher returns by taking more risk when investing cash collateral (paragraph 28).
- Such financial stability risks should be contained by adequate regulation and supervision (paragraph 28).
- Footnote definitions and references retained in source:
  - Wrong-way risk: exposure to a counterparty is highly likely to increase when the creditworthiness of that counterparty is deteriorating (footnote 10).
  - Reference: F. Wendt, “Central Counterparties: Addressing their Too Important to Fail Nature.” IMF Working Paper 15/21 (January 2015) (footnote 11).

### Economic efficiency and market neutrality (CCPs)
- Allowing CCPs access to a settlement account and the RTGS system:
  - Positively influences market efficiency by facilitating fast and smooth payments and reduced complexity (paragraph 29).
- Access to a remunerated deposit account:
  - Helps level the playing field when CCPs compete domestically or internationally because interest income on balances can be substantial (paragraph 30).
- Competition with commercial banks:
  - Provision of deposit facilities and ELA by a central bank would not materially compete with banks due to the relatively small size of these services compared to banks’ overall portfolios (paragraph 31).
  - Commercial bank participants typically recognize the positive impact of central bank facilities on CCP risk profiles and market stability (paragraph 31).

### Operational costs and risks for central bank (CCPs)
- Extending liquidity (ELA) to CCPs exposes a central bank to credit risk and oversight cost (paragraph 32).
- Credit risk should be reduced ex-ante through strong regulation and oversight and based on the Principles for Financial Market Infrastructures (paragraph 32).
- Oversight will come with additional cost in the form of additional staff members (paragraph 32).

### Application to Chile — CCPs: current situation and recommendations
- Current BCCh practice:
  - BCCh currently provides the two CCPs in Chile (CCLV and ComDer) with access to a settlement account, which is not remunerated (paragraph 33).
  - Both CCPs use this account for daily payments and settlements; ComDer also uses it to deposit its cash collateral overnight; CCLV deposits its cash collateral at various commercial banks (paragraph 33).
  - CCPs do not have access to BCCh intraday or overnight liquidity, which currently is prohibited by law (paragraph 33).
- Mission support and recommendations:
  - Supports BCCh’s existing policy to provide CCPs with access to the payment system (paragraph 34).
  - Recommends extending access to central bank liquidity on a discretionary basis (i.e., ELA) and offering a remunerated deposit facility (paragraph 34).
    - Rationale: Such access would enable BCCh to provide CCPs with liquidity support against high quality liquid assets in extreme circumstances when CCPs cannot receive liquidity via commercial credit lines, the repo market, or by selling securities because of market disruption (paragraph 34, bullet).
    - The discretionary nature of liquidity provision (as opposed to allowing access to the SLF) aims to reduce moral hazard (paragraph 34, bullet).
    - Access to a remunerated deposit account will contribute to a level playing field for domestic/international competition and indirectly to financial stability by supporting ComDer’s survival and keeping CCP services onshore (paragraph 34, footnote 12 and bullet).
- Monetary policy implementation:
  - Impact on monetary policy implementation is limited through BCCh’s bottom-up collection of information: counterparts provide credible forecasts of cash flows and cash collateral deposits; BCCh uses statistics on the expiration of derivatives and the structure of time deposits; may use trade repository information in the future (paragraph 35).
- Preconditions and oversight:
  - CCPs must be subject to strong regulation, supervision, and oversight before liquidity and remunerated deposit services are provided (paragraph 36).
  - Good practice: central banks include CCPs within the scope of their payment system function to obtain necessary information and powers to address credit, liquidity, and operational risks (paragraph 36).
- BCCh capacity and resource implications:
  - Payment system oversight department can monitor current activities and conduct PFMI assessments, but oversight of CCPs requires additional specialists — ideally one to two dedicated staff members with relevant experience (paragraph 37).
  - BCCh needs to develop dedicated rules and procedures for SDF and ELA provision to CCPs and intensify cooperation with the CMF, preferably through a Memorandum of Understanding (paragraph 37).

### Recommendations summary (CCPs) — reflected in Table 4 (qualitative)
- Recommended central bank services for CCPs:
  - RTGS: 
  - Intraday credit: X
  - SDF: 
  - SLF: X
  - ELA: 
- Assessment matrix indicators in source (symbols preserved):
  - Monetary policy: - / 0 / - / - / - (as shown per service)
  - Financial stability: 0 / 0 / + / - / ++
  - Economic efficiency/neutrality: + / 0 / ++ / 0 / ++
  - Operational costs/risks: - / - / - / - / - 
- Note: “” = recommendation that access should be granted; “X” = recommendation that access should not be granted; “+” = positive assessment; “-” = negative assessment; “0” = neutral assessment (Table 4 note).

### Central Securities Depositories (CSDs): context, risks, and Chile application
- General context:
  - CSDs are systemically important FMIs and often have access to a settlement account to settle securities transactions in central bank money and coordinate DVP processes (paragraph 38).
  - Access is not strictly necessary; CSDs can send settlement instructions to the RTGS operator (paragraph 38).
- Monetary policy implementation:
  - CSD access to central bank facilities may impede central bank forecasts of system liquidity needs; impact limited when settlement account is used only for intraday settlements with a zero balance overnight (paragraph 39).
- Financial stability:
  - CSD access to central bank facilities (physical account or coordination of DVP with RTGS) may support financial stability by facilitating centralized coordination of securities settlements in central bank money, mitigating dependencies on correspondent banks (paragraph 40).
- Economic efficiency and market neutrality:
  - CSD access to a settlement account may speed settlements and reduce complexities via coordination of securities and cash settlement (paragraph 41).
- Operational costs and risks:
  - Central bank may face additional costs and require staff with additional knowledge to oversee CSDs if granted access to a settlement account (paragraph 42).
- Application to Chile (DCV):
  - DCV is the one active CSD in Chile providing securities accounts, safekeeping, asset services, and a registrar function; it does not coordinate DVP processes (paragraph 43).
  - DVP processes: CCLV handles exchange-traded securities; ComBanc handles OTC-traded securities (paragraph 43).
  - DCV provides collateral and other services to BCCh in repos and monetary policy operations; BCCh currently does not provide DCV with access to a settlement account or other central bank facilities (paragraph 43).
  - DCV is regulated and supervised by the CMF without a formal role for BCCh (paragraph 43).
- Settlement practice concerns (OTC-traded bonds):
  - International good practice: government bonds and central bank securities settled using a DVP model 1 on t+0 (paragraph 45, footnote 13).
  - In Chile, DVP model 1 coexists with DVP model 2 for OTC-traded bonds (ComBanc coordinates; securities leg in DCV; cash leg can be net via ComBanc or direct RTGS) (paragraph 45).
  - ComBanc’s net option (DVP model 2) is preferred by banks for liquidity efficiency but may expose participants to material credit and liquidity risks in extreme circumstances (paragraph 45).
- Recommendation for Chile (CSDs and OTC settlement):
  - BCCh and CMF should strengthen OTC-traded bond settlement on financial stability grounds: government, central bank, and corporate bonds should be settled using a DVP model 1 settlement in the RTGS system (paragraph 46).
  - Coordination of DVP settlements could be done through DCV for safe gross settlements in seconds; increasing ComBanc’s deposit amounts is expected to disincentivize DVP model 2 use (paragraph 46).
  - DCV access to a settlement account should be conditional on adequate regulation and supervision; BCCh should intensify cooperation with CMF, preferably through an MOU (paragraph 47).

### Recommendations summary (CSDs) — reflected in Table 5 (qualitative)
- Recommended central bank services for CSDs:
  - RTGS: 
  - Intraday credit: X
  - SDF: X
  - SLF: X
  - ELA: X
- Assessment matrix indicators in source (symbols preserved):
  - Monetary policy: 0 / 0 / 0 / 0 / 0
  - Financial stability: + / 0 / 0 / 0 / 0
  - Economic efficiency/neutrality: + / 0 / 0 / 0 / 0
  - Operational costs/risks: - / - / - / - / -
- Note: “” = recommendation that access should be granted; “X” = recommendation that access should not be granted; “+” = positive assessment; “-” = negative assessment; “0” = neutral assessment (Table 5 note).

### Nonbank Payment Service Providers: context, risks, and Chile application
- General context:
  - Access typically limited to a settlement account for automated clearing houses or check clearing houses to facilitate net settlement of retail payments in central bank money (paragraph 48).
  - Nonbank access can support innovation and a level playing field (paragraph 48).
- Monetary policy implementation:
  - Impact depends on provider type and transaction volume: automated clearing houses likely have small net settlements with little effect on reserve demand; token-based services backed by reserves could complicate policy if token demand is volatile (paragraph 49).
- Financial stability:
  - Access/ELA for Nonbank payment service providers is not expected to have a significant financial stability impact because they typically handle low-value retail payments (paragraph 50).
  - Only a very dominant player could create stability concerns where central bank facilities/ELA would be important to reduce dependencies on commercial banks (paragraph 50).
- Economic efficiency and market neutrality:
  - Central bank access is expected to increase system efficiency by enabling direct settlement in RTGS and stimulating payment service innovation by providing a level playing field (paragraph 51).
  - Potential limited disintermediation of commercial banks if banks continue to provide other services (paragraph 51).
- Operational costs and risks:
  - Central bank may incur additional costs: providers given settlement accounts should be subject to payment system oversight, requiring increased oversight capacity (paragraph 52).
- Application to Chile:
  - BCCh does not provide central bank facilities to payment systems or other Nonbank payment service providers; ComBanc, low-value clearing houses, automated clearing house for card payments and fast payments do not have a central bank account or access to liquidity facilities (paragraph 53).
  - These operators send BCCh a list with net payment instructions daily to be settled on participants’ settlement accounts (paragraph 53).
  - Recommendation: BCCh should consider providing Nonbank payment service providers with access to a settlement account if the provider would settle a potentially large volume of payments, with the proviso that oversight scope is extended to cover such providers (paragraph 54).

### Recommendations summary (Nonbank payment service providers) — reflected in Table 6 (qualitative)
- Recommended central bank services for Nonbank providers:
  - RTGS: 
  - Intraday credit: X
  - SDF: X
  - SLF: X
  - ELA: X
- Assessment matrix indicators in source (symbols preserved):
  - Monetary policy: 0 / 0 / 0 / 0 / 0
  - Financial stability: 0 / 0 / 0 / 0 / 0
  - Economic efficiency/neutrality: ++ / 0 / 0 / 0 / 0
  - Operational costs/risks: - / - / - / - / -
- Note: “” = recommendation that access should be granted; “X” = recommendation that access should not be granted; “+” = positive assessment; “-” = negative assessment; “0” = neutral assessment (Table 6 note).

*Source: IMF staff.*

### 56. Allowing CUs access to the full range of central bank services is likely to have little

### 1chlea2020002 - 56. Allowing CUs access to the full range of central bank services is likely to have little

### Monetary policy
- Allowing credit unions (CUs) access to the full range of central bank services is likely to have little impact on the central bank’s ability to effectively implement monetary policy.
- CUs demand for holding precautionary liquidity could potentially fall given increased certainty of access to liquidity through the SLF.
- Interest rate transmission may strengthen if CUs adjust their lending and deposit rates more quickly to changes in the policy rate, which could occur if the link between CUs’ marginal cost of funds and the policy rate tightens because of access to the payment system and to central bank standing facilities.
- Providing ELA to large CUs in times of stress is likely to support monetary policy implementation, as interbank and other markets are less likely to become impaired.

### Financial stability
- CUs shut out from central bank services must conduct payments and liquidity management through commercial banks, increasing interconnectedness and systemic risk.
- Providing CUs with settlement accounts together with standing facilities reduces these links; potential provision of ELA allows the central bank to mitigate contagion where a CU is considered systemic.
- Subject to adequate regulation/supervision, allowing CUs access to central bank services should have a positive impact on financial stability; in the absence of regulation/supervision, such access may incentivize greater risk-taking.

### Economic efficiency and market neutrality
- Economic efficiency and market neutrality matter when CUs are large and compete across similar product lines as banks.
- Many CUs serve different markets (lower-income customers, small geographic regions), but some CUs may be larger than some commercial banks and operate across a broad range of services.
- Exclusion from central bank services can put a CU at a disadvantage because bank-sourced services are likely more expensive and credit lines with commercial banks may not be honored in a crisis.
- Central banks could establish a threshold—by asset size, customer base, and product range—to assess whether some CUs are disadvantaged by lack of access.

### Operating cost and risks of the central bank
- Marginal costs of extending payment services (settlement accounts, RTGS access) to additional CUs are likely low given appropriate infrastructure.
- Access to liquidity (intra-day, overnight, and ELA) increases operational costs (collateral management) and raises risks; risk-mitigation measures can be used but liquidity access is riskier than denial of access.

### Application to Chile and recommendations for Credit Unions
- Coopeuch specifics:
  - Accounts for 82 percent of the sector.
  - Regulated in a similar way to banks, internationally rated, competes with commercial banks across a range of financial services.
  - Has 7 percent of the population as members.
  - By asset size, if it were a bank, it would be the fourteenth largest out of the total of twenty that operate in Chile.
- Recommendation framework:
  - There may be a case to grant Coopeuch access to all central bank services, but the BCCh should first establish and communicate a clear policy position.
  - Overriding consideration: entities must be supervised by the CMF and meet regulatory standards equivalent to those applied to banks—ruling out CUs only supervised by the Ministry of the Economy.
  - Additional tests: asset size, customer base, geographical reach, product range.
  - A locally operating CU with limited product range, even if supervised by the CMF, would likely not be granted access.
  - The BCCh should communicate its policy on CU counterparty eligibility to engender trust.
  - Where a CU meets the threshold for accessing services, consider granting access to BCCh open market operations to further ensure a level playing field.

- Summary assessment from the recommendations table (subject to policy development for adequate regulation/supervision and other criteria):
  - Recommendation to grant access to RTGS, Intraday credit, SDF, SLF, and ELA: “” (access recommended).
  - Monetary policy, Financial stability, Economic efficiency/neutrality: assessed as “+” (positive).
  - Operational costs/risks: assessed as “-” (negative).

### Broker-dealers — context, impacts, and recommendations
- General context:
  - Broker-dealers are principal intermediaries, provide liquidity in cash, repo, and securities markets, and may differ in business models and organizational setups (subsidiaries of banks/NBFIs or independent).
  - Broker-dealers may be counterparties to central bank operations and play a role in monetary policy transmission.
- Monetary policy implementation:
  - Providing access would likely not impair, and could enhance, monetary policy implementation.
  - The central bank may need to adapt liquidity forecasting to include broker-dealers’ reserve demand; volatility risk if broker-dealers frequently use standing lending facilities.
  - Improved broker-dealer access could enhance liquidity in securities markets and policy transmission.
- Financial stability:
  - Settlement account access is generally positive for financial stability by facilitating securities settlement in central bank money and reducing interconnectedness with correspondent banks.
  - Access to standing lending facilities and ELA may incentivize increased risk-taking by broker-dealers, weakening financial stability if regulation is inadequate.
- Economic efficiency and market neutrality:
  - Access could lower transaction costs (e.g., reduce bid-offer spreads) if commercial bank access is unjustifiably expensive.
  - Neutrality of access within broker-dealers is important to ensure effective competition.
- Operating cost and risks:
  - Settlement account access should not materially increase operating costs; liquidity provision increases financial risks but can be contained through collateral and risk mitigation.
- Application to Chile and recommendations:
  - Broker-dealers are important given the size of Chilean capital markets; business models vary and broker-dealers may co-exist with other activities.
  - Broker-dealers are eligible counterparties to BCCh open market operations; nonbank related broker-dealers currently do not have access to any central bank services.
  - The BCCh, in consultation with the CMF, should ensure regulation and supervision of broker-dealers is adequate; the BCCh should retain the right to form its own view and could develop an MoU with the CMF for information sharing.
  - Recommendation: allow broker-dealers access to a settlement account, but not to intraday credit, standing facilities, or ELA.
  - Rationale: settlement accounts reduce interconnectedness (DVP in central bank money); denial of liquidity facilities avoids incentivizing risk-taking.
  - Future access to BCCh liquidity including ELA would require a high bar: bank-like capital, liquidity, and leverage regulation plus a systemic test.

- Summary assessment from the recommendations table:
  - RTGS: “” (grant access); Intraday credit, SDF, SLF, ELA: “X” (do not grant).
  - Monetary policy, Financial stability, Economic efficiency/neutrality: mostly “+” assessments; operational costs/risks show mixed/negative (“-”) for liquidity-related services.

### Mutual funds — context, impacts, and Chile application
- General context:
  - Mutual funds do not usually have access to central bank facilities; they are users, not providers, of payment services.
  - Central bank access for mutual funds would compete with private sector entities, undermining private sector innovation and increasing central bank operational costs and risks.
  - Little or no impact expected on monetary policy implementation.
  - Financial stability risks could increase if access to standing facilities and ELA impacts risk-taking without adequate regulation.
  - Liquidity mismatches in mutual funds (redemption pressures for illiquid underlying assets) are best addressed by sector-wide programs; isolated fund stress generally should be borne by investors unless contagion risk exists.
- Application to Chile:
  - Recommendation: BCCh should not allow mutual funds access to any BCCh services.
  - Mutual funds in Chile are heavily geared towards money market funds (42 percent of assets under management), implying significant maturity transformation and seemingly without stringent credit criteria.
  - Suggested tools: appropriate regulation, communication of liquidity risks, and liquidity management tools (gates, fees, swing-pricing, suspension of redemptions).
- Summary assessment from the recommendations table:
  - RTGS, Intraday credit, SDF, SLF, ELA: all “X” (do not grant).
  - Monetary policy and Financial stability: “0” (neutral) assessments for monetary policy, mixed/negative for stability and operational costs.

### Insurance companies and pension funds — context and recommendation
- General context:
  - Unusual for central banks to allow insurance companies and pension funds access to facilities; they are users, not providers, of payment services.
  - Little or no impact on monetary policy implementation is expected.
  - Case against providing liquidity to individual entities is stronger on financial stability grounds because these entities generally do not have runnable liabilities; liquidity mismatches are likely small relative to mutual funds.
- Application to Chile and recommendation:
  - BCCh should not grant insurance companies and pension funds access to its services.
  - The mission supports BCCh powers to provide sector-wide support where liquidity pressures in these sectors amplify contagion risk.
- Summary assessment from the recommendations table:
  - RTGS, Intraday credit, SDF, SLF, ELA: all “X” (do not grant).
  - Monetary policy, Financial stability, Economic efficiency/neutrality: largely “0” (neutral) with negative operational cost/risk assessments for liquidity-related services.

### Sector-wide liquidity provision
- The BCCh should have powers to intervene with sector-wide liquidity provision even when individual institutions are not granted access to BCCh services.
- Rationale:
  - Sector-wide powers allow the BCCh to address systemic liquidity risks in a particular sector and stop sector-specific stresses from spilling over.
  - The BCCh should also have the power to directly intervene in key securities markets under severe stress to address financial stability risks.
- Notable legal/policy context:
  - Under Federal Reserve Act s13(3), the central bank cannot lend to individual NBFIs but can “...discount for any participant in any program or facility with broad-based eligibility....” Broad-based eligibility has been defined as eligibility of five or more institutions.

*Source: IMF staff.*

### 2. Policies toward NBFIs, however, are more heterogeneous. One reason is that demand

### 2. Policies toward NBFIs, however, are more heterogeneous.

### Objectives and policy considerations
- Common central bank objectives when considering access for NBFIs:
  - Mitigate high concentrations of credit, liquidity, and operational risk by providing a safe liquid settlement asset and a high degree of assurance of service continuity.
  - Treat financial market participants in an even-handed manner and, in some circumstances, permit access to a competitively neutral settlement institution.
- Factors that may discourage access:
  - Monetary policy considerations may discourage giving intraday credit to institutions that are not monetary policy counterparts.
  - Moral hazard: holders of settlement accounts may be misperceived to be within the safety net and hence likely to be eligible for emergency credit.
- Practical implementation:
  - Central banks place different weights on these considerations and allow themselves an element of discretion.
  - Access to an account often is conditional upon certain requirements.

### Access patterns across NBFI types
- Central Counterparties (CCPs):
  - CCPs are most often provided with access to a central bank settlement account: around 70 percent of all countries in which a CCP operates.
  - CCPs are provided access to standing liquidity facilities in 18 percent of countries where a CCP operates.
  - Several central banks allow CCPs to access a remunerated deposit facility for the deposit of cash collateral overnight.
  - To mitigate monetary policy consequences, some central banks require CCPs to notify changes in deposit levels (Reserve Bank of Australia) or to provide funds up to a target level and place remaining funds with commercial counterparts (Bank of England).
  - All central banks in Figure 2 that provide services to CCPs have explicit oversight responsibilities for CCPs.
- Line between intraday liquidity, SLF, and ELA for CCPs:
  - All types of liquidity aim to provide CCPs with funds against high quality liquid collateral when commercial liquidity facilities are unavailable.
  - Some central banks can only use ELA for these circumstances (U.S. Federal Reserve).
  - Other central banks provide intraday liquidity to act fast in crises (Switzerland).
  - Bank of England provides CCPs access to the standard liquidity facility for sterling needs but requires explicit approval; for non-sterling needs the BOE would use its ELA facility.
- Central securities depositories (CSDs) and other payment service providers:
  - 33 percent of central banks provide access to a settlement account for CSDs and other FMIs.
  - They rarely provide other types of access (intraday liquidity, deposit facilities, lending facilities).
  - Access to a central bank account allows settlement in central bank money using one settlement account, increasing safety and efficiency.
  - In some countries intraday credit is automatically connected to the settlement account; in others central banks require evidence that payment activities are significant and access reduces systemic risk.
  - Bank of England allows Nonbank payment service providers access to a settlement account (without intraday liquidity) to support competition and innovative payments.
- Securities firms:
  - Various central banks allow securities firms to open accounts to settle payment obligations arising from securities settlements.
  - Settlement accounts reduce risks where securities firm activities create highly concentrated exposures or raise efficiency or competitive equality issues because such institutions compete directly with banks in providing payment services.
- Other NBFIs:
  - Insurance companies: 7 percent of countries provide access to settlement accounts at the central bank.
  - Investment funds (pensions, mutual funds): 10 percent of countries provide access to settlement accounts at the central bank.
  - Access to the standard liquidity facility (SLF) is rarer: 3 percent for insurance companies and 6 percent for investment funds.
  - In specific market circumstances, access may be provided to facilitate direct participation in money markets and enhance market liquidity (example: Switzerland for insurance companies).

### Emergency Liquidity Assistance (ELA) and explicitness of policies
- Central bank ELA policies for NBFIs are less explicit:
  - Most central banks prefer constructive ambiguity over publicly defined eligibility criteria for ELA.
  - Where eligibility criteria are published, most entail only banks, although central bank speeches suggest preference for flexibility to provide ELA to other systemically important financial institutions.
  - ELA to NBFIs (example: money market mutual funds during the 2008 global financial crisis) can contain potential significant losses to the economy.

### Variation by country income level
- Access policies vary by income level (112 countries grouped by income in Figure 3):
  - High-income and upper middle-income countries are equally open in the provision of settlement accounts.
  - They differ substantially in the provision of access to liquidity facilities, with high-income countries being more restrictive.
  - Possible explanation: private liquidity sources are more abundantly available in high-income countries, so central banks in other countries play a more central role in liquidity provision.

*Source: IMF staff analysis in the provided chapter excerpt.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1chlea2020002.pdf_