IMF Executive Board Concludes Financial System Stability Assessment with Chile
IMF News, December 9, 2021
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Bibliographic details
- Published: December 9, 2021
Press and procedural details
- Press Release No. 21/367
- Date: December 9, 2021
- IMF Communications Department, MEDIA RELATIONS
- PRESS OFFICER: David Sharrock
- Phone: +1 202 623-7100
- Email: MEDIA@IMF.org
- The Executive Board concluded the FSAP with Chile on December 3, 2021 without a meeting under the lapse-of-time procedure.
Scope, missions, and report timing
- Financial Sector Assessment Program (FSAP) remote missions to Chile during March-April and July-August 2021.
- Financial Sector Stability Assessment (FSSA) report completed on November 17, 2021.
- The FSAP is a comprehensive assessment established in 1999; FSAPs are mandatory for the 47 jurisdictions with systemically important financial sectors and otherwise conducted upon request. Key findings are summarized in an FSSA.
Overall assessment
- Conclusion: The financial system in Chile functions well overall within a sound regulatory framework.
- The FSSA found that the twin shocks of social unrest in late 2019 and COVID-19 were adeptly managed due to:
- Massive and well-coordinated supervisory and fiscal policy responses.
- Unprecedented liquidity support from the Central Bank of Chile (BCCh).
Liquidity risks and recommended reforms
- Events noted:
- Mutual and pension fund redemptions during 2019.
- Subsequent BCCh crisis measures used to relieve shock impacts highlighted structural liquidity risks.
- Recommendations:
- Strengthen the liquidity management framework for mutual funds.
- Develop the interbank repo market.
- Strengthen central bank risk management practices.
Pension system findings and recommendations
- Observation: The funded pension system, instrumental in market deepening, is under threat in part due to a series of withdrawals.
- Recommendations:
- Halt further pension withdrawals and life annuity liquidations.
- Improve pension fund regulation and investment options to promote long-term investment and minimize excessive portfolio switching.
Regulatory reorganization and Basel III
- Important reorganization of the financial regulatory authorities has been finalized.
- Basel III will be implemented starting in December 2021.
- Banking supervisory framework: found to be robust but needs further improvements in areas including consolidated supervision and some aspects of credit risk.
Banking sector resilience and policy advice
- Banks remained profitable through the crisis, partially supported by:
- Central bank financing.
- Government-guaranteed SME lending.
- FSAP findings and recommendations:
- The banking sector is sufficiently capitalized overall.
- Banks should ensure continued resilience by transitioning to Basel III-compliant capital structures and completing announced capital raises.
- Pandemic-related measures should be carefully withdrawn when appropriate.
- Introduce a bank resolution mechanism and deposit insurance.
- Implement a risk-based capital framework for insurers.
IMF press release: IMF Executive Board Concludes Financial System Stability Assessment with Chile (Press Release No. 21/367), December 9, 2021.