## _wp11299

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---

### I. Introduction — scope, data, and regional observations
- Scope:
  - Analyzes financial supervision and macroprudential instruments in Central America, Panama, and the Dominican Republic (CAPDR).
  - Evaluates strengths and weaknesses in main supervisory practices; analyzes use of prudential measures with potential macroprudential impact; draws country-specific recommendations.
- Data and methods:
  - Two indexes built from Basel Core Principles (BCP) assessments and a survey conducted among the seven financial superintendencies during the last two months of 2010.
  - A separate survey of financial superintendencies and IMF desk economists of CAPDR and LA5 from November 2010 until January 2011.
- Key regional observations:
  - On average, countries comply with 56 percent of the BCP principles.
  - Risk-based supervision compliance averages 48 percent; institutional factors compliance averages 61 percent.
  - The regional banking system coped well with the global financial crisis of 2008–09.

### II. Financial regulation and supervision — methodology and focus
- Focus:
  - Main emphasis on banking supervision; banking sector intermediates over 85 percent of total assets in CAPDR.
  - Quality of supervision of nonbanks is generally lower than in the banking system.
- BCP methodology (index construction):
  - 30 BCP principles ranked: compliant = 1; largely compliant = 0.75; materially non-compliant = 0.25; non-compliant = 0.
  - Raw index range: 0 (all principles non-compliant) to 30 (all principles compliant); normalized to 0–100 scale to represent percentage compliance.
  - Groupings:
    - Risk-based supervision: principles 7, 8, 9, 13, 14, 15, 16 and 18.
    - Cross-border consolidated supervision: principles 6, 10, 11, 12, 19, 20, 21, 22, 24, and 25.
    - Institutional factors: principles 1.1, 1.2, 1.3, 1.4, 1.5, 1.6 and 23.
    - Governance: principles 2, 3, 4, 5 and 17.
- Caveats:
  - Latest available BCP assessment used for each country; assessment year differs across countries and may penalize countries with dated assessments.
  - BCP assessments in the region mostly under FSAP, except Panama where they were stand-alone exercises.

### III. Findings from BCP compliance index and country results
- Aggregate and category compliance:
  - CAPDR average compliance: 56 percent of the BCP principles.
  - Institutional factors: 61 percent (regional average).
  - Risk-based supervision: 48 percent (regional average).
- Country average compliance values (text table excerpts):
  - Costa Rica 37
  - Honduras 48
  - El Salvador 66
  - Guatemala 44
  - Dominican Republic 57
  - Panama 87
  - CAPFR 56
  - Note: index is an unweighted average and excludes Nicaragua.
- Progress 2000–10:
  - First round (2000–2005): average compliance ~ one-third of principles (12 out of 30).
  - Second round (2006–2010): average compliance > half of principles (17 out of 30).
  - Cross-border consolidated supervision increased by 21 points to 56; average increase across categories was 19 points.
  - Risk-based supervision improved by 60 percent in relative terms.
  - Institutional factors index value of 65 — regional strengthening driven by legal reforms.
- Country-specific highlights:
  - Panama:
    - Leads region; level of effective supervision close to LA5 average.
    - Governance and cross-border consolidated supervision assessed favorably.
    - Gaps ~20 percent vis-à-vis full compliance in risk-based supervision and institutional aspects due to: lack of legal protection for supervisors; weaknesses in institutional supervisory setup for nonbanks; limitations in corporate governance rules; deficiencies in measurement of actuarial risk in supervisory activities on fiduciaries.
  - Costa Rica and Honduras:
    - Costa Rica’s assessment suffers from inadequacy of its legal framework for risk-based supervision and cross-border consolidated supervision.
  - Guatemala:
    - 2006 BCP assessment is relatively old and does not reflect later progress.
  - El Salvador:
    - Low compliance with risk-based supervision despite overall performance higher than regional average; inadequate regulatory framework for risk management and credit, market, liquidity, operational and interest rate risk in the banking book.

### IV. Comparison with benchmarks
- Benchmarks considered:
  - LA5: Brazil, Chile, Colombia, Mexico, and Peru.
  - Industrial country benchmarks: Spain and Canada.
- Comparative findings:
  - CAPDR region compliance: 56 percent.
  - LA5 ranges from 80 to 90.
  - Spain and Canada close to 100.
  - Largest gaps: cross-border consolidated supervision and risk-based supervision.

### V. Self-Assessment Index of Supervisory Practices (SAI) — survey results
- Survey scope and construction:
  - Seven banking superintendencies surveyed supervisory practices in: risk-based supervision, cross-border consolidated supervision, and supervisory perimeter.
  - 30 questions total, 10 per category; each question ranked 0 (best international practices not applied at all) to 10 (full compliance).
  - Final results normalized to range zero to 100.
- Aggregated regional SAI results and comparison to BCP:
  - Risk-based supervision: slightly below 50 percent vis-à-vis perfect compliance with international best practices.
  - Cross-border consolidated supervision: almost 70 percent compliance with international best practices.
  - Supervisory perimeter: relatively poor performance; area only marginally covered by BCP.
  - Surveys broadly confirm BCP compliance index despite methodology/timing differences.
- Country-level SAI values (Table 2 excerpts):
  - Risk-Based Supervision (selected):
    - Guatemala: 54.3
    - Honduras: 44.6
    - Costa Rica: 48.3
    - El Salvador: 42.0
    - Nicaragua: 38.0
    - Panama: 47.4
    - Dominican Republic: 57.1
    - CAPDR Average: 47.4
  - Cross-Border Consolidated Supervision (selected):
    - Guatemala: 82.9
    - Honduras: 71.2
    - Costa Rica: 64.1
    - El Salvador: 61.8
    - Nicaragua: 74.1
    - Panama: 77.6
    - Dominican Republic: 42.4
    - CAPDR Average: 67.7
  - Supervisory perimeter (selected):
    - Guatemala: 37.2
    - Honduras: 30.6
    - Costa Rica: 66.1
    - El Salvador: 17.8
    - Nicaragua: 38.6
    - Panama: 45.0
    - Dominican Republic: 43.1
    - CAPDR Average: 39.8
  - TOTAL (SAI aggregated):
    - Guatemala: 58.1
    - Honduras: 48.8
    - Costa Rica: 59.5
    - El Salvador: 40.5
    - Nicaragua: 50.2
    - Panama: 56.7
    - Dominican Republic: 47.5
    - CAPDR Average: 51.6
- Country-level discrepancies:
  - Differences explained by timing, methodology, and self-perception vs. impartial BCP assessment.
  - Panama: supervisors report needed improvements in risk-based supervision while the 2007 BCP ranked Panama highly; 2007 BCP noted underdeveloped processes for measurement and monitoring of market risk and no capital adequacy requirement for market risks.

### VI. Self-assessment — main shortcomings by supervisory category
- Risk-based supervision:
  - Objectives well defined and generally understood.
  - Regulatory framework at different stages of development; implementation mostly embryonic.
  - Need for continued training of supervisory staff on analyzing broad spectrum of financial risks and implementing risk-based techniques.
  - Use of vulnerability indicators particularly limited:
    - Costa Rica: no indicators used to measure systemic impact of an institution.
    - Nicaragua: only indicator applied is market share.
- Cross-border consolidated supervision:
  - Progress in reporting systems and definition of related parties.
  - Weaknesses: legal framework, scope of cross-border consolidated supervision, intraregional coordination.
  - Dominican Republic: lacks legislation defining structure of financial conglomerates; work in progress to pass a financial groups law.
  - El Salvador: financial conglomerates not allowed industrial participations.
  - Panama: law enables regulators to request necessary information from any company pertaining to an economic group.
  - Intraregional coordination: fostered by Central American Council of Financial Supervisors, but national legislation still hampers exchange of critical information and Council not designed to operate at supranational level.
- Supervisory perimeter:
  - Legal definition of financial institution/financial activity weak in all countries except Costa Rica and Panama.
  - No size limits for financial institutions; only Costa Rica mandates intensified supervision when growth exceeds a predetermined threshold.
  - Types of risks and operations under supervision limited; few countries mapping operational risks.
  - Micro-finance, credit cooperatives, savings banks and mutual institutions often not effectively regulated and supervised even when relatively large; legal reforms being prepared in Guatemala, Honduras, and Nicaragua.

### VII. Macroprudential instruments — definition, taxonomy, and scope
- Definition:
  - Macroprudential policy: measures to monitor, prevent, and address system-wide risks and minimize cost of systemic crises.
- Scope of paper:
  - Limited to macroprudential instruments (regulations); excludes intensified surveillance tools or capital controls.
- Classifications noted:
  - Time-series (countercyclical) vs. cross-sectional (common exposures).
  - Rule-based vs. discretionary.
  - Quantity restrictions vs. price restrictions.
  - BIS pragmatic classification linking measures to microprudential categories.
- Many instruments serve both micro- and macroprudential objectives; countercyclical use and spillovers blur categories.

### VIII. Regional use and evolution of macroprudential measures (CAPDR)
- Survey coverage:
  - Survey among financial superintendencies and IMF desk economists from November 2010 until January 2011; covered 2000–2010 for CAPDR and 2010 for LA5.
- Key regional findings:
  - Most macroprudential measures are traditional microprudential instruments; no new countercyclical or leverage-related measures in place.
  - At end-2010, countries had on average 1.9 active traditional macroprudential measures in place.
  - Most widespread instrument: reserve requirement.
  - Sector-specific and maturity mismatch measures present marginally (~0.5 instruments on average).
  - Credit growth limits and countercyclical measures: generally not in place.
  - Limits on net open foreign exchange positions and related measures increased four-fold during the last decade.
    - Motivations: protect against exchange rate volatility (Costa Rica and Guatemala); address indirect foreign exchange risk in highly dollarized countries (Guatemala, Honduras, and Nicaragua); manage foreign exchange liquidity risk (El Salvador).
  - Some countries strengthened microprudential measures after domestic banking crises (Dominican Republic and Nicaragua).
  - A few measures (mainly liquidity) were relaxed during the global financial crisis but mostly returned to pre-crisis levels.
- Aggregate statement:
  - Average number of instruments that could be used as macroprudential measures more than doubled in the region during the last decade.
  - Countries in CAPDR applying 4.9 measures in 2010, up from 2.1 measures on average in 2000. Costa Rica (text fragment indicates national example).

### IX. Strengthening the macroprudential toolkit — observed practices and recommendations
- Observed practice on foreign exchange risk:
  - Limits on net open foreign exchange positions generalized.
  - Costa Rica and Nicaragua introduced specific capital requirements for net open foreign exchange positions.
  - Guatemala, Honduras, and Nicaragua implemented special capital requirements for foreign exchange lending to unhedged borrowers.
  - El Salvador: reserve requirement on banks’ external credit lines.
- Other possible instruments to introduce:
  - Specific capital requirements for net open foreign exchange positions and for foreign exchange lending to unhedged borrowers.
  - Reserve requirements on banks’ external credit lines.
  - Eliminate restrictions to capital outflows (e.g., liberalize foreign investment by domestic pension funds).
  - In extreme cases, legislation to introduce a tax on capital inflows as a precautionary tool.
- Maturity mismatch and liquidity:
  - Limits mainly used as microprudential liquidity tools but can act macroprudentially if term transformation fuels asset bubbles.
  - Dominican Republic, Guatemala, and Panama currently do not have regulatory limits on maturity mismatches.
  - No country in CAPDR currently regulates core funding.
  - Recommendation: strengthen liquidity regulation by limiting financing of long-term assets with noncore funding and ensuring stability of core funding.
- Sectoral measures:
  - Rare and precautionary except in Costa Rica.
  - Costa Rica: limit on banks’ public sector credit concentration equivalent to 30 percent of capital.
  - Only Panama and Guatemala have legal ability to introduce sector-specific mandatory provisions.
- Limits to credit growth and countercyclical measures:
  - Limits to credit growth absent as standing regulatory caps.
  - New countercyclical measures underdeveloped in the region; Basel III includes a countercyclical capital buffer.
- General policy recommendations:
  - Broaden macroprudential toolkit on a precautionary basis to manage foreign exchange instability, destabilizing capital inflows, credit booms, and asset price bubbles.
  - Prefer market-friendly instruments with reinforcing microprudential effects.
  - Consider strengthening traditional leverage ratios, sectoral credit and provisioning limits, and maturity mismatch limits depending on speed of credit recovery.
  - Countries facing large capital inflows (e.g., Costa Rica) should consider further strengthening measures to mitigate risks from sudden rises in short-term capital inflows, including limiting domestic credit growth through indirect, market-based macroprudential tools.
  - Careful consideration of countercyclical measures in conjunction with Basel III capital requirements.

### X. Key statistics and selected measures (Appendix 2, Table A — CAPDR, 2010)
- Sample: Out of a 20-measure sample (2010).
- Average instruments applied per country:
  - LA5: six.
  - CAPDR: countries applying 4.9 measures in 2010 (up from 2.1 in 2000).
- Selected country-specific measures and exact values:
  - Maximum limit on loan-to-value ratios:
    - El Salvador: YES (80)
    - Dominican Republic: YES (100)
    - Guatemala: YES (70-80)
    - Costa Rica: NO
    - Panama: NO
    - Honduras: NO
    - Nicaragua: YES
    - CAPDR Percent Average: 57 1/
    - Midpoint average noted: 85 2/
  - Debt-to-income ratio caps:
    - Costa Rica: YES (30)
    - Panama: YES (75)
    - CAPDR Percent Average: 43
    - CAPDR Percent Average (midpoint): 52.5
  - Reserve requirements:
    - Costa Rica: YES (15-32)
    - Panama: NO
    - El Salvador: YES (1-25)
    - Honduras: YES (18-24)
    - Dominican Republic: YES (10-17.5)
    - Guatemala: YES (14.6)
    - Nicaragua: YES (16.25)
    - CAPDR Percent Average: 86
    - CAPDR Percent Average (midpoint): 16.5
  - Limits on credit concentration with respect to specific sectors:
    - Costa Rica: YES (30) — percent of capital (applies only to exposure to central public government).
    - CAPDR Percent Average: 14
    - CAPDR Percent Average (midpoint): 30
  - Limits on maturity mismatches on bank balance sheets:
    - Costa Rica: YES (85-100)
    - Panama: NO
    - El Salvador: YES (70-100)
    - Honduras: YES
    - Dominican Republic: NO
    - Guatemala: NO
    - Nicaragua: YES (100-200)
    - CAPDR Percent Average: 57
    - CAPDR Percent Average (midpoint): 135
    - Country specifics:
      - Costa Rica: 100 percent for assets maturing 1 month and 85 percent for assets maturing 3 month required to obtain maximum CAMEL classification.
      - El Salvador: Ratio of assets maturing within 30 days to liabilities maturing within 30 days of at least 100 percent; at least 70 percent for 90 day horizon.
      - Nicaragua: maturity mismatching up to 30 days cannot surpass one time base capital; up to 90 days cannot surpass two times base capital.
  - Limits on net open foreign exchange positions (short/long net positions):
    - Costa Rica: YES (SP -100; LP 100) and cap of 4 percent of own resources to the daily change in net open position.
    - Panama: NO
    - El Salvador: YES (SP -10; LP 10)
    - Honduras: YES (SP -5; LP 50)
    - Dominican Republic: YES (SP -100; LP 100)
    - Guatemala: YES (SP -20; LP 60)
    - Nicaragua: NO
    - CAPDR Percent Average: 71
    - CAPDR Percent Average (midpoint): SP -52.5; LP 55 3/
  - Specific capital requirements for net open foreign exchange positions:
    - Costa Rica: YES (10)
    - Nicaragua: YES (10)
    - All other listed CAPDR countries: NO
    - CAPDR Percent Average: 29
    - CAPDR Percent Average (midpoint): 10
    - Costa Rica note: capital requirement on exchange rate risk equivalent to absolute value of net position multiplied by risk factor of 10 percent.
  - Reserve requirements on external credit lines to banks:
    - El Salvador: YES (5)
    - CAPDR Percent Average: 14
    - CAPDR Percent Average (midpoint): 5
  - Special capital requirements for foreign exchange lending to unhedged borrowers:
    - Honduras: YES (150)
    - Guatemala: YES (140)
    - Nicaragua: YES (125)
    - CAPDR Percent Average: 43
    - CAPDR Percent Average (midpoint): 137.5
  - Limits to foreign investment by domestic pension funds:
    - Costa Rica: YES (50)
    - Panama: NO
    - El Salvador: YES (20)
    - Honduras: YES (15)
    - Dominican Republic: NO
    - Guatemala: NO
    - Nicaragua: NO
    - CAPDR Percent Average: 57 4/
    - CAPDR Percent Average (midpoint): 35 3/
    - Notes: Costa Rica figures in percent of total investment assets; Honduras in percent of total resources; El Salvador: in practice, less than 1 percent of investment is in foreign securities.
- Measures not applied anywhere in CAPDR (from the 20-measure sample):
  - Special capital requirements for exposures to specific sectors: NO across all countries.
  - Limits on net non-core funding dependence ratio: NO across all countries.
  - Minimum core funding ratio: NO across all countries.
  - Bank-specific caps on credit growth, credit ceilings, loan-to-deposit limits: NO across all countries.
  - Tax on capital inflows: NO across all countries.
  - Dynamic (cyclically based) loan loss provisioning rules and cyclically based capital adequacy ratios: NO across all countries.

### XI. Conclusions — priority policy actions
- Priority areas to strengthen supervisory practices:
  - Improve risk-based supervision.
  - Expand and enforce consolidated and cross-border supervision.
  - Strengthen supervisory perimeter and legal frameworks where weak (examples: El Salvador, Costa Rica, Dominican Republic).
  - Improve quality and reliability of financial sector indicators and implement International Accounting Standards.
  - Enhance supervisor independence, resources, and training to retain experienced staff.
  - Leverage technical assistance through regional coordination (Central American Council of Financial Supervisors and its permanent executive secretariat).
- Macroprudential policy priorities:
  - Continue expanding macroprudential toolbox on a precautionary basis, favoring market-friendly tools with reinforcing microprudential effects.
  - Consider countercyclical measures together with Basel III capital requirements.

*Source: IMF staff estimates and country BCP assessments as presented in the provided content.*

### References .............................................................................................................

### _wp11299 - References .............................................................................................................

### I. Introduction
- Scope:
  - Analyzes financial supervision and macroprudential instruments in Central America, Panama, and the Dominican Republic (CAPDR).
  - Evaluates strengths and weaknesses in main supervisory practices; analyzes use of prudential measures with potential macroprudential impact; draws country-specific recommendations.
- Key regional observations:
  - On average, countries comply with 56 percent of the BCP principles.
  - Risk-based supervision compliance averages 48 percent; institutional factors compliance averages 61 percent.
  - The regional banking system coped well with the global financial crisis of 2008–09.
- Survey and data sources:
  - Two indexes built from Basel Core Principles (BCP) assessments and a survey conducted among the seven financial superintendencies during the last two months of 2010.
  - A separate survey of financial superintendencies and IMF desk economists of CAPDR and LA5 from November 2010 until January 2011.

### II. Financial Regulation and Supervision in CAPDR
- Focus:
  - Paper focuses mainly on banking supervision; banking sector intermediates over 85 percent of total assets in CAPDR.
  - Quality of supervision of nonbanks is generally lower than in the banking system.
- BCP methodology summary:
  - BCP principles ranked in four categories: non-compliant, materially non-compliant, largely compliant, compliant.
  - Numeric mapping used for index construction: compliant = 1; largely compliant = 0.75; materially non-compliant = 0.25; non-compliant = 0.
  - Index value range: 0 (all principles non-compliant) to 30 (all principles compliant); normalized to 0–100 scale to represent percentage compliance.
  - 30 BCP grouped into four categories: risk-based supervision; cross-border consolidated supervision; institutional factors; governance.
  - Risk-based supervision includes principles 7, 8, 9, 13, 14, 15, 16 and 18.
  - Cross-border consolidated supervision comprises principles 6, 10, 11, 12, 19, 20, 21, 22, 24, and 25.
  - Institutional factors includes principles 1.1, 1.2, 1.3, 1.4, 1.5, 1.6 and 23.
  - Governance includes principles 2, 3, 4, 5 and 17.
- Caveats:
  - Latest available BCP assessment used for each country; assessment year differs across countries and may penalize countries with dated assessments.
  - BCP assessments conducted in the region mostly under the Financial Sector Assessment Program (FSAP), except Panama where they were stand-alone exercises.

### III. Findings from BCP Compliance Index and Country Results
- Aggregate compliance:
  - On average, CAPDR countries comply with 56 percent of the BCP principles.
  - Compliance by category (regional averages reported in text):
    - Institutional factors: 61 percent.
    - Risk-based supervision: 48 percent.
- Table 1 excerpts (as presented):
  - Country Average compliance values (text table): Costa Rica 37, Honduras 48, El Salvador 66, Guatemala 44, Dominican Republic 57, Panama 87, CAPFR 56.
  - Note: Table headings and specific cell alignments provided in source; index is an unweighted average and excludes Nicaragua.
- Progress over 2000–10:
  - First round of BCP assessments (2000–2005): average compliance ~ one-third of principles (12 out of 30).
  - Second round (2006–2010): average compliance > half of the principles (17 out of 30).
  - Cross-border consolidated supervision increased by 21 points to 56; average increase across categories was 19 points.
  - Risk-based supervision improved by 60 percent in relative terms.
  - Institutional factors index value of 65 (regional strengthening driven by legal reforms).
- Country-specific highlights:
  - Panama:
    - Leads the region in BCP results; level of effective supervision close to the LA5 average.
    - Governance and cross-border consolidated supervision assessed favorably.
    - Gaps of about 20 percent vis-à-vis full compliance in risk-based supervision and institutional aspects due to: lack of legal protection for supervisors; weaknesses in institutional supervisory setup for nonbanks; limitations in corporate governance rules; deficiencies in measurement of actuarial risk in supervisory activities on fiduciaries.
  - Costa Rica and Honduras:
    - Costa Rica’s assessment suffers from inadequacy of its legal framework for risk-based supervision and cross-border consolidated supervision.
  - Guatemala:
    - 2006 BCP assessment is relatively old and does not reflect later progress.
  - El Salvador:
    - Low compliance with risk-based supervision despite overall performance higher than regional average; inadequate regulatory framework for risk management and credit, market, liquidity, operational and interest rate risk in the banking book.

### IV. Comparison with Benchmarks (LA5, Spain, Canada)
- Benchmarks:
  - LA5: Brazil, Chile, Colombia, Mexico, and Peru.
  - Industrial country benchmarks: Spain and Canada.
- Comparative findings:
  - CAPDR region remains at 56 percent compliance; LA5 ranges from 80 to 90; Spain and Canada close to 100.
  - Gaps are particularly wide in cross-border consolidated supervision and risk-based supervision.

### V. Self-Assessment Index of Supervisory Practices (SAI)
- Survey scope:
  - Seven banking superintendencies surveyed their supervisory practices in three main areas: risk-based supervision, cross-border consolidated supervision, and supervisory perimeter.
- SAI construction:
  - 30 questions total, 10 per category.
  - Each question ranked from 0 (best international practices not applied at all) to 10 (full compliance with best international practices).
  - Result was weighted (weighting details are in source).
- Use and availability:
  - The survey template and answers from the superintendencies are available from the authors upon request.

### VI. Macroprudential Measures (summary from introduction)
- General usage:
  - Prudential measures with potential macroprudential objectives generally introduced for microprudential purposes.
  - Traditional instruments (reserve requirements; limits on borrower’s leverage) are prevalent in CAPDR.
  - Liquidity regulations appear to have been used countercyclically.
- Motivations for measures:
  - Increase in exposure to foreign exchange risk in some countries prompted rapid implementation of prudential regulations aimed at limiting this risk mainly at the micro level.
- Policy recommendations summarized:
  - Structural reforms to improve legal and regulatory frameworks, increase transparency, and strengthen supervisory institutions to meet international best practices.
  - Full introduction of risk-based supervision techniques will take several years and require considerable resources.
  - Legal reforms to allow full exchange of information and better intraregional coordination to improve cross-border consolidated supervision.
  - Monetary and supervisory authorities could consider calibrating and, in some cases, expanding the macroprudential toolbox ahead of potentially destabilizing increases in capital inflows, rapid credit growth, and asset price bubbles.

*Source: IMF staff estimates and country BCP assessments as presented in the provided content.*

### Appendix 1 contains a table with the weights of each question, the rating assigned to each question after weight,

### _wp11299 - Appendix 1 contains a table with the weights of each question, the rating assigned to each question after weight,

### Appendix 1 — purpose and methodology
- Appendix 1 contains a table with the weights of each question, the rating assigned to each question after weight, and the value of the SAI assigned to each country and main supervisory practice.
- Subjective judgment on the extent to which the description provided by each superintendency was more or less near best international practices was based on the authors’ experience and consultation with experts in the field.
- Final results were normalized in a range of zero to 100, where 100 would represent total compliance with best international practices.

### Survey findings and relation to BCP compliance index
- The surveys confirm to a large extent the results obtained through the BCP compliance index (Table 2), despite differences in methodology and timeframe.
- Aggregated regional SAI results (from the survey) reflect gaps:
  - Risk-based supervision: slightly below 50 percent vis-à-vis a theoretical perfect level of compliance with international best practices.
  - Cross-border consolidated supervision: almost 70 percent compliance with international best practices.
- The survey finds relatively poor performance with regard to the definition of the supervisory perimeter — an area only marginally covered by the BCP, making direct comparison with the SAI impossible.

### Country-level SAI values (Table 2 excerpts)
- Risk-Based Supervision:
  - Guatemala: 54.3
  - Honduras: 44.6
  - Costa Rica: 48.3
  - El Salvador: 42.0
  - Nicaragua: 38.0
  - Panama: 47.4
  - Dominican Republic: 57.1
  - CAPDR Average: 47.4
- Cross-Border Consolidated Supervision:
  - Guatemala: 82.9
  - Honduras: 71.2
  - Costa Rica: 64.1
  - El Salvador: 61.8
  - Nicaragua: 74.1
  - Panama: 77.6
  - Dominican Republic: 42.4
  - CAPDR Average: 67.7
- Supervisory perimeter:
  - Guatemala: 37.2
  - Honduras: 30.6
  - Costa Rica: 66.1
  - El Salvador: 17.8
  - Nicaragua: 38.6
  - Panama: 45.0
  - Dominican Republic: 43.1
  - CAPDR Average: 39.8
- TOTAL (SAI aggregated):
  - Guatemala: 58.1
  - Honduras: 48.8
  - Costa Rica: 59.5
  - El Salvador: 40.5
  - Nicaragua: 50.2
  - Panama: 56.7
  - Dominican Republic: 47.5
  - CAPDR Average: 51.6
- Source note: IMF staff assessment based on supervisory authorities' responses to questionnaires.

### Country-level discrepancies between SAI and BCP
- Differences between the BCP compliance index and the SAI on a country-by-country basis are explained by:
  - Different timing (example: Guatemala).
  - Different methodological approaches.
  - In some cases, BCP assessments are impartial evaluations, while surveys reflect superintendencies’ self-perception.
- Panama: notable discrepancy — supervisory authorities identify substantial improvements needed in risk-based supervision, while the 2007 BCP ranked Panama very highly in this area and in other areas of banking supervision and regulation.
  - The 2007 BCP noted Panama had “underdeveloped processes for the measurement and monitoring of market risk” and no capital adequacy requirement for market risks, and highlighted shortcomings in regulations for country and market risks.

### Self-assessment by supervisory category — main shortcomings
- Risk-based supervision:
  - Objectives well defined and generally well understood.
  - Regulatory framework at different stages of development; implementation mostly embryonic.
  - Need for continued training of supervisory staff on analyzing the broad spectrum of financial risks and implementing risk-based techniques.
  - Use of vulnerability indicators is particularly limited:
    - Costa Rica: no indicators used to measure systemic impact of an institution.
    - Nicaragua: the only indicator applied is market share.
- Cross-border consolidated supervision:
  - Region has advanced in introduction; adequate reporting systems and definition of related parties are generally sound.
  - Areas needing strengthening: legal framework, scope of cross-border consolidated supervision, intraregional coordination.
  - Dominican Republic: lacks legislation defining the structure of financial conglomerates; work in progress to pass a financial groups law.
  - Scope typically limited to financial activities, except:
    - El Salvador: financial conglomerates are not allowed industrial participations.
    - Panama: law enables regulators to request necessary information from any company pertaining to an economic group.
  - Intraregional coordination: fostered by Central American Council of Financial Supervisors, but national legislation still hampers exchange of critical information and the Council’s institutional structure is not designed to operate at a supranational level.
- Supervisory perimeter:
  - Several weaknesses in definition and implementation across the region.
  - Legal definition of financial institution/financial activity has weaknesses in all countries except Costa Rica and Panama.
  - No size limits for financial institutions; only Costa Rica mandates intensified supervision when growth exceeds a predetermined threshold.
  - Types of risks and operations under supervisor purview are limited; only a few countries mapping operational risks; regulations on market risk and risk management are only now being developed.
  - Micro-finance, credit cooperatives, savings banks and mutual institutions often not effectively regulated and supervised even when relatively large; legal reforms being prepared in Guatemala, Honduras, and Nicaragua.

### Macroprudential instruments — scope and classification
- Macroprudential policy defined as measures to monitor, prevent, and address system-wide risks and minimize the cost of systemic crises.
- Paper scope limited to macroprudential instruments (regulations), excluding intensified surveillance tools or capital controls.
- No standard taxonomy; classifications include:
  - Time-series (countercyclical) vs. cross-sectional (common exposures).
  - Rule-based (automatic stabilizers) vs. discretionary.
  - Quantity restrictions vs. price restrictions.
  - BIS pragmatic classification linking measures to microprudential categories (Table 3).
- Many instruments can serve both micro- and macroprudential objectives; countercyclical use and spillover effects blur strict categories.

### Macroprudential instrument categories analyzed (sample of 20)
- Six categories (pragmatic BIS-like approach):
  - Traditional measures.
  - Sectoral measures.
  - Maturity mismatches.
  - Credit growth limits.
  - Foreign exchange risk and capital inflows.
  - Countercyclical measures.
- Note: All 20 measures have potential countercyclical use; analysis of countercyclical use refers to those specifically in the countercyclical category.

### Regional use and evolution of macroprudential measures (CAPDR)
- Analysis based on survey among financial superintendencies and IMF desk economists from November 2010 until January 2011; survey covered 2000–2010 for CAPDR and 2010 for LA5 benchmark.
- Key regional findings:
  - Most macroprudential measures in the region are traditional microprudential instruments; there are no new countercyclical or leverage-related measures in place (Figure 4).
  - At end-2010, countries of the region had on average 1.9 active traditional macroprudential measures in place.
  - The most widespread instrument is the reserve requirement.
  - Other categories present only marginally (about 0.5 instruments on average for sector-specific and maturity mismatches).
  - Credit growth limits and countercyclical measures: generally not in place.
  - Growing use of limits on net open foreign exchange positions and related measures — increased four-fold during the last decade.
    - Motivations: protect against exchange rate volatility (Costa Rica and Guatemala); address indirect foreign exchange risk in highly dollarized countries (Guatemala, Honduras, and Nicaragua); and manage foreign exchange liquidity risk (El Salvador).
  - Some countries (Dominican Republic and Nicaragua) strengthened microprudential measures after domestic banking crises.
  - A few measures (mainly liquidity) were relaxed during the global financial crisis but in most cases returned to pre-crisis levels.
- Aggregate statement:
  - As a result of microprudential measures addressing foreign exchange risks, the average number of instruments that could be used as macroprudential measures has more than doubled in the region during the last decade.
  - Countries in the CAPDR region are applying 4.9 measures in 2010, up from (value truncated in source).

*Source: IMF staff assessment based on supervisory authorities' responses to questionnaires and survey results presented in the document.*

### 2.1 measures on average in 2000. Costa Rica

### 2.1 measures on average in 2000. Costa Rica

### Use of macroprudential instruments: CAPDR vs. LA5
- Despite increases in introduction of macroprudential measures, the region is still somewhat below the LA5 average.
- Total average instruments applied per country in the LA5 group is six, barely over one-fourth of the 20 instruments surveyed and only one instrument more than the CAPDR countries.
- The LA5 group has already started introducing new countercyclical measures, which is the most relevant difference versus CAPDR.
- The number of macroprudential measures is not necessarily correlated with effective protection against systemic risk; calibration matters more than count.
- Comparisons of ranges of limits and requirements provide only a very broad sense of intensity; available information does not allow a weighted average per country.

### Strengthening the macroprudential toolkit — findings and observed practices
- Measures to reduce foreign exchange risk (limits on net open foreign exchange positions) are now generalized in the region.
  - Costa Rica and Nicaragua introduced specific capital requirements for net open foreign exchange positions.
  - Guatemala, Honduras, and Nicaragua implemented special capital requirements for foreign exchange lending to unhedged borrowers.
  - El Salvador has a reserve requirement on banks’ external credit lines.
- Other measures to mitigate foreign exchange risk remain relatively rare and could be introduced, including:
  - specific capital requirements for net open foreign exchange positions and for foreign exchange lending to unhedged borrowers;
  - reserve requirements on banks’ external credit lines;
  - eliminate restrictions to capital outflows, such as liberalizing foreign investment by domestic pension funds;
  - in extreme cases, legislation to introduce a tax on capital inflows as a precautionary tool.
- Measures to limit maturity mismatches are mainly used as microprudential liquidity tools but can affect credit growth and act as macroprudential instruments if term transformation fuels asset bubbles.
  - The Dominican Republic, Guatemala, and Panama do not have regulatory limits on maturity mismatches.
  - Currently, no country in the CAPDR region has regulated the core funding.
  - Liquidity regulation could be strengthened by establishing limits on financing long-term assets with noncore funding and ensuring stability of core funding.
- Sectoral and other specific measures are rare and, except for Costa Rica, are precautionary in nature.
  - Costa Rica has a limit on banks’ public sector credit concentration equivalent to 30 percent of capital.
  - Only Panama and Guatemala have the legal ability to introduce sector-specific mandatory provisions.
- Limits to credit growth are absent as standing regulatory caps in the region; their absence reduces availability of an important last-resort tool when rapid legislative changes are slow.
- New countercyclical measures are underdeveloped in the region; Basel III includes a countercyclical capital buffer among available instruments.

### Empirical evidence and cautions
- There is very limited empirical analysis of effectiveness of macroprudential measures in the region due to lack of data and heterogeneity of tool definitions.
- A broader set of tools does not automatically imply a better framework; a single correctly calibrated measure can be sufficient.
- Using number and type of measures as a proxy for intensity can be misleading; granular balance-sheet data and calibration details are required for meaningful comparisons.

### Country-level and policy recommendations (region-wide themes)
- Broaden the macroprudential toolkit on a precautionary basis to manage foreign exchange instability, destabilizing capital inflows, credit booms, and asset price bubbles.
- Prefer market-friendly instruments with reinforcing microprudential effects.
- Consider strengthening traditional leverage ratios, sectoral credit and provisioning limits, and maturity mismatch limits depending on speed of credit recovery.
- Countries facing large capital inflows (e.g., Costa Rica) should consider further strengthening macroprudential measures to mitigate risks from a sudden rise in short-term capital inflows, including limiting domestic credit growth through indirect, market-based macroprudential tools.
- Careful consideration of countercyclical measures in conjunction with Basel III capital requirements to reinforce banking soundness with minimal impact on the credit cycle.

### Key statistics and specific measures from Appendix 2, Table A (CAPDR—Macroprudential Measures, 2010)
- Sample: Out of a 20-measure sample (2010).
- Average instruments applied per country in LA5: six.
- Selected country-specific measures and exact values:
  - Maximum limit on loan-to-value ratios:
    - Costa Rica: NO
    - Panama: NO
    - El Salvador: YES (80)
    - Honduras: NO
    - Dominican Republic: YES (100)
    - Guatemala: YES (70-80)
    - Nicaragua: YES
    - CAPDR Percent Average: 57 1/
    - Midpoint average noted: 85 2/
  - Debt-to-income ratio caps:
    - Costa Rica: YES (30)
    - Panama: YES (75)
    - CAPDR Percent Average: 43
    - CAPDR Percent Average (midpoint): 52.5
  - Reserve requirements:
    - Costa Rica: YES (15-32)
    - Panama: NO
    - El Salvador: YES (1-25)
    - Honduras: YES (18-24)
    - Dominican Republic: YES (10-17.5)
    - Guatemala: YES (14.6)
    - Nicaragua: YES (16.25)
    - CAPDR Percent Average: 86
    - CAPDR Percent Average (midpoint): 16.5
  - Limits on credit concentration with respect to specific sectors:
    - Costa Rica: YES (30) — In percent of capital (applies only to exposure to central public government).
    - CAPDR Percent Average: 14
    - CAPDR Percent Average (midpoint): 30
  - Limits on maturity mismatches on bank balance sheets:
    - Costa Rica: YES (85-100)
    - Panama: NO
    - El Salvador: YES (70-100)
    - Honduras: YES
    - Dominican Republic: NO
    - Guatemala: NO
    - Nicaragua: YES (100-200)
    - CAPDR Percent Average: 57
    - CAPDR Percent Average (midpoint): 135
    - Costa Rica specific: 100 percent for assets maturing 1 month and 85 percent for assets maturing 3 month required to obtain maximum CAMEL classification.
    - El Salvador specific: Ratio of assets maturing within 30 days to liabilities maturing within 30 days of at least 100 percent; at least 70 percent for 90 day horizon.
    - Nicaragua specific: maturity mismatching up to 30 days cannot surpass one time base capital; up to 90 days cannot surpass two times base capital.
  - Limits on net open foreign exchange positions (short/long net positions):
    - Costa Rica: YES (SP -100; LP 100)
      - In addition, cap of 4 percent of own resources to the daily change in net open position.
    - Panama: NO
    - El Salvador: YES (SP -10; LP 10)
    - Honduras: YES (SP -5; LP 50)
    - Dominican Republic: YES (SP -100; LP 100)
    - Guatemala: YES (SP -20; LP 60)
    - Nicaragua: NO
    - CAPDR Percent Average: 71
    - CAPDR Percent Average (midpoint): SP -52.5; LP 55 3/
  - Specific capital requirements for net open foreign exchange positions:
    - Costa Rica: YES (10)
    - Panama: NO
    - El Salvador: NO
    - Honduras: NO
    - Dominican Republic: NO
    - Guatemala: NO
    - Nicaragua: YES (10)
    - CAPDR Percent Average: 29
    - CAPDR Percent Average (midpoint): 10
    - Costa Rica note: capital requirement on exchange rate risk equivalent to absolute value of net position multiplied by risk factor of 10 percent.
  - Reserve requirements on external credit lines to banks:
    - El Salvador: YES (5)
    - CAPDR Percent Average: 14
    - CAPDR Percent Average (midpoint): 5
  - Special capital requirements for foreign exchange lending to unhedged borrowers:
    - Honduras: YES (150)
    - Guatemala: YES (140)
    - Nicaragua: YES (125)
    - CAPDR Percent Average: 43
    - CAPDR Percent Average (midpoint): 137.5
  - Limits to foreign investment by domestic pension funds:
    - Costa Rica: YES (50)
    - Panama: NO
    - El Salvador: YES (20)
    - Honduras: YES (15)
    - Dominican Republic: NO
    - Guatemala: NO
    - Nicaragua: NO
    - CAPDR Percent Average: 57 4/
    - CAPDR Percent Average (midpoint): 35 3/
    - Notes: Costa Rica figures in percent of total investment assets; Honduras in percent of total resources; El Salvador: in practice, less than 1 percent of investment is in foreign securities.
- Measures not applied anywhere in CAPDR (from sample) include:
  - Special capital requirements for exposures to specific sectors: NO across all countries (counted as 0).
  - Limits on net non-core funding dependence ratio: NO across all countries (counted as 0).
  - Minimum core funding ratio: NO across all countries (counted as 0).
  - Bank-specific caps on credit growth, credit ceilings, loan-to-deposit limits: NO across all countries (counted as 0).
  - Tax on capital inflows: NO across all countries (counted as 0).
  - Dynamic (cyclically based) loan loss provisioning rules and cyclically based capital adequacy ratios: NO across all countries (counted as 0).

### Conclusions (summary of policy priorities)
- There is ample scope to further strengthen supervisory practices in CAPDR, with priority on:
  - improving risk-based supervision;
  - expanding and enforcing consolidated and cross-border supervision;
  - strengthening the supervisory perimeter and legal frameworks where weak (examples: El Salvador, Costa Rica, Dominican Republic);
  - improving quality and reliability of financial sector indicators and implementing International Accounting Standards;
  - enhancing supervisor independence, resources, and training to retain experienced staff;
  - leveraging technical assistance through regional coordination (Central American Council of Financial Supervisors and its permanent executive secretariat).
- The region should continue expanding its macroprudential toolbox on a precautionary basis, favoring market-friendly tools with reinforcing microprudential effects and considering countercyclical measures together with Basel III capital requirements.

*Source: Supervisory authorities, country legislation, and IMF staff (Appendix 2, Table A, CAPDR—Macroprudential Measures, 2010).*

### Appendix 2. Table B: LA5—Macroprudential Measures, 2010

### Appendix 2. Table B: LA5—Macroprudential Measures, 2010

### Traditional macro & micro prudential measures
- Maximum limit on loan to value ratios. (in percent of collateral value)
  - Chile: YES — 60-100
  - Peru: NO
  - Brazil: NO
  - Colombia: YES — 70-80
  - Mexico: YES — 60 1/ ; 80 2/
  - LA5 Percent Average: 60 1/ ; 80 2/
  - Comments:
    - Chile: 60 percent limit applies to foreign exchange-denominated mortgages. Most mortgages in domestic currency are subject to a 75 percent limit. Under specific circumstances, the latter limit could go up to 100 percent of collateral value. In all cases, these limits apply to loans funded with letters of credit. Further, an 80 percent limit exists for mortgages funded with "mutuos endosables."
    - Colombia: limit for regular mortgages is 70 percent, 80 percent for low income people's houses.
    - Mexico: applies for mortgages.

- Debt to income ratio caps
  - Chile: YES — 25
  - Peru: NO
  - Brazil: NO
  - Colombia: YES — 30
  - Mexico: NO
  - LA5 Percent Average: 40 ; 27.5
  - Comments:
    - Chile: For mortgages (loans funded with letters of credit) where value of house is below UF3.000, payments cannot exceed 25 percent of borrower's income.
    - Colombia: The first payment on a mortgage loan is limited at most to 30 percent of the family income.

- Reserve requirements
  - Chile: YES — 0-9
  - Peru: YES — 6-32
  - Brazil: YES — 8-43
  - Colombia: YES — 0-11
  - Mexico: NO
  - LA5 Percent Average: 80 ; 21.5
  - Comments:
    - Chile: Depends on type of deposit and currency. A rate of 9 percent applies to sight deposits in domestic currency, a rate of 3.6 percent is applied to all time deposits, and a rate of zero percent applies to liabilities over one year in domestic currency and repos with Treasury and Central Bank securities. For foreign currency, a 9 percent rate applies to sight deposits, and a 3.6 percent rate is applied to time deposits.
    - Peru: domestic/foreign currency deposits.
    - Brazil: depending on the type of deposit (current deposits/time deposits/rural banking/other deposits).
    - Colombia: depending on maturity and type of liability (0/4.5/11 percent); marginal reserve requirements were eliminated in 2008.

### Sectoral and other specific measures
- Limits on credit concentration with respect to specific sectors
  - Chile: YES — 100
  - Peru: NO
  - Brazil: NO
  - Colombia: NO
  - Mexico: NO
  - LA5 Percent Average: 20 ; 100
  - Comments:
    - Chile: investments in foreign banks should not exceed the bank's capital and reserves. In addition, investments in time deposits of foreign banks can not be higher than 30 percent of regulatory capital ("patrimonio efectivo"), and investments in securities issued or guaranteed by States, foreign Central Banks, or international organizations that Chile has adhered to can not be higher than 50 percent of regulatory capital.

- Mandatory provisions on exposures to specific sectors
  - Chile: NO
  - Peru: NO
  - Brazil: NO
  - Colombia: NO
  - Mexico: NO
  - LA5 Percent Average: 0

- Special capital requirements for exposures to specific sectors
  - Chile: NO
  - Peru: NO
  - Brazil: NO
  - Colombia: NO
  - Mexico: NO
  - LA5 Percent Average: 0

- Maturity mismatches
  - Limits on maturity mismatches on bank balance sheets
    - Chile: YES — 100- 200
    - Peru: NO
    - Brazil: YES
    - Colombia: YES
    - Mexico: YES — 75
    - LA5 Percent Average: 150
    - Comments:
      - Chile: up to 30 days, 100 percent of capital; up to 90 days, 200 percent of capital.
      - Colombia: Minimum ratio that applies only for foreign exchange positions. A ratio (IRL) compound of liquid assets (ALM) - the net requirements of liquidity (RLN), measures liquidity gaps in the short term (7, 15, 30 & 90 days) and assures that financial entities keep a positive liquidity cushion.

  - Limits on net non-core funding dependence ratio
    - Chile: NO
    - Peru: NO
    - Brazil: NO
    - Colombia: NO
    - Mexico: NO
    - LA5 Percent Average: 0

  - Minimum core funding ratio
    - Chile: NO
    - Peru: NO
    - Brazil: NO
    - Colombia: NO
    - Mexico: NO
    - LA5 Percent Average: 0

### Limit credit growth, Foreign exchange risk and capital inflows
- Bank-specific caps on credit growth
  - Chile: NO
  - Peru: NO
  - Brazil: NO
  - Colombia: NO
  - Mexico: No
  - LA5 Percent Average: 0

- Credit ceilings
  - Chile: NO
  - Peru: NO
  - Brazil: NO
  - Colombia: NO
  - Mexico: NO
  - LA5 Percent Average: 0

- Loan-to-deposit limits
  - Chile: NO
  - Peru: NO
  - Brazil: NO
  - Colombia: NO
  - Mexico: NO
  - LA5 Percent Average: 0

- Limits on open foreign exchange positions SP (LP): short (long) net positions
  - Chile: NO
  - Peru: YES — SP -15 ; LP +75
  - Brazil: YES — SP - 30 ; LP + 30
  - Colombia: YES — SP - 5 ; LP + 20
  - Mexico: YES — SP - 15 ; LP +15
  - LA5 Percent Average: SP -17.5 ; LP  +47.5 3/
  - Comments:
    - Chile: A limit of 20 percent of capital for short and long foreign exchange positions was replaced by a specific capital requirement five years ago. Currently, regulatory capital must be higher than the addition of risk-weighted assets and the sum of interest risk and foreign currency risk exposures.
    - Peru: The position refers to the spot plus derivative positions. There is an additional limit on the net foreign exchange derivative position: the absolute value of the net position in foreign exchange derivatives cannot be greater than 40 percent of capital or 400 millions of nuevos soles, whatever is greater.
    - Brazil: In percent of capital. It's calculated on a net basis subtracting total liabilities from total assets.
    - Colombia: In addition, foreign currency position in cash cannot exceed 50 percent of the bank's risk weighted capital and cannot be negative, and gross position cannot exceed 550 percent of risk weighted capital.
    - Mexico: In addition, liquid foreign exchange assets should cover 100 percent of net foreign exchange cash outflows for the following 60 days, and banks’ medium-term foreign exchange liabilities cannot exceed 1.83 times their capital.

- Specific capital requirements for net open foreign exchange positions
  - Chile: YES — 8-10
  - Peru: NO
  - Brazil: NO
  - Colombia: NO
  - Mexico: NO
  - LA5 Percent Average: 20 ; 9
  - Comments:
    - Chile: Open foreign exchange positions beyond 8 percent of capital (minus any potential interest risk exposures) are subject to a capital requirement equal to risk-weighted assets (8 percent) of capital, which could be increased up to 10 percent.

- Reserve requirements on external credit lines to banks
  - Chile: YES — 3.6
  - Peru: YES — 60
  - Brazil: NO
  - Colombia: YES — 0
  - Mexico: NO
  - LA5 Percent Average: 60 ; 30
  - Comments:
    - Peru: Includes credit channeled through off-shore domestic financial institutions. Applies to liabilities with maturity of less than 2 years.
    - Colombia: There is a reserve requirement but the rate has been reduced to zero.

- Special capital requirements for foreign exchange lending to unhedged borrowers
  - Chile: NO
  - Peru: NO
  - Brazil: NO
  - Colombia: YES — 25
  - Mexico: NO
  - LA5 Percent Average: 25
  - Comments:
    - Peru: a generic provision for foreign exchange losses of 0.25 to 1 percent is set on all foreign exchange loans that have not been evaluated, regardless of whether borrowers are unhedged.

- Limits to foreign investment by domestic pension funds
  - Chile: YES — 80
  - Peru: YES — 30
  - Brazil: NO
  - Colombia: YES — 60
  - Mexico: YES — 30
  - LA5 Percent Average: 20 4/ ; 55 3/
  - Comments:
    - Chile: limits were raised to 80 percent of assets under management.
    - Peru: A bill has been sent to Congress to increase this limit to 50 percent.

- Tax on capital inflows
  - Chile: NO
  - Peru: NO
  - Brazil: YES — 6
  - Colombia: NO
  - Mexico: NO
  - LA5 Percent Average: 20 ; 6
  - Comments:
    - Brazil: in percent of gross flow.

### New countercyclical measures
- Dynamic (cyclically based) loan loss provisioning rules
  - Chile: NO
  - Peru: YES
  - Brazil: NO
  - Colombia: YES
  - Mexico: NO
  - LA5 Percent Average: 40
  - Comments:
    - Peru: Effective since December 2008, GDP based and applied systematically to all banks.
    - Colombia: in mid-2007 dynamic provisioning adopted for commercial banks, and in mid-2008, extended to consumer loans. In September 2009, it was decided that countercyclical provisioning would be more rule based and bank specific starting in April 2010.

- Cyclically based capital adequacy ratios
  - Chile: NO
  - Peru: NO
  - Brazil: YES
  - Colombia: NO
  - Mexico: NO
  - LA5 Percent Average: 20
  - Comments:
    - Peru: No, but shadow capital requirements apply. The authorities are considering introducing it.
    - Brazil: de facto, not the jure.
    - Colombia: at end-2008, banks reached agreement with the superintendency to retain a portion of their 2008 profits as an individual capital buffer.

*Sources: Supervisory authorities and IMF staff. Notes: 1/ Percentage of countries applying each specific macroprudential measure. 2/ Mid-point between the lower and higher bounds of the range for the region. Higher limits tend to imply less stringent regulations. On the contrary, higher requirements tend to make the regulation more conservative. 3/ Higher limits on long foreign exchange positions (and on foreign investment by pension funds) may counterbalance the effects of inflows on exchange rate and credit growth. As they work opposite to the rest of limits, mid-point of the range is pooled with requirements. 4/ Limits on foreign investment by domestic pension funds prevent capital outflows and avoid counterbalancing the effects of inflows on exchange rate and credit growth. As they work opposite to the rest of limits in the table, percentage of "no" is calculated.*

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