Is Latin America’s Financial Sector on a Strong Footing?

November 29, 2011

While the economic turmoil relentlessly ravages Europe and the United States, Latin American countries anxiously wait on the sidelines. The crisis has the potential to dampen the regional trend of solid growth during the past decade.

In this context, the question is whether Latin American banking and financial systems are sufficiently solid to withstand an expansion –for which they must be prepared– and a hypothetical intensification of the current global economic situation.

The response to this question is positive, according to the study Financial Development in Latin America and the Caribbean: the Road Ahead. In light of their improved macroeconomic policy frameworks and quality of financial oversight, the study concluded that these systems are stable and solid. However, the report states that several challenges remain, both at the level of consumers and the system.

“As regards of the underlying financial oversight, important gaps remain in traditional bank administration, particularly with respect to the independence of bank supervisors and their legal protection, the regulation of capital adequacy and the consolidated management of financial conglomerates (both domestically and across borders),” according to the report.

Despite having solid cushions to protect them, Latin American financial and banking systems have several weaknesses: Banks lend little and charge a lot for their services to consumers; long-term financing for homes and businesses is problematic; mortgage loans are out of reach for most citizens; and capital markets –which drive worth in developed societies– suffer from a lack of liquidity.

Video: Is Latin America financially prepared against an international crisis?