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Understanding Bank Regulations in Ecuador
This article provides answers to frequently asked questions about bank regulations in Ecuador.
What is a Bank’s Capital?
A bank’s capital refers to its shareholders’ equity, which is the difference between its assets and liabilities. In other words, it represents the amount of money that shareholders have invested in the bank.
Minimum Amount of Own Funds Required for a Bank
The minimum amount of own funds (capital) required for a bank is 20% of its risk-weighted assets. This ensures that banks maintain a sufficient level of capital to withstand potential losses and maintain financial stability.
Regulation of Banks in Ecuador
Banks in Ecuador are regulated by the Superintendency of Banks, which has oversight powers to monitor and supervise all financial institutions. The Superintendency is responsible for ensuring that banks comply with regulatory requirements and maintain sound financial practices.
Deposit Guarantee in the Event of Bank Failure
In the event of a bank failure, deposits up to US$11,270 (or equivalent) will be guaranteed by the state. This provides protection for depositors and helps to maintain confidence in the banking system.
What Happens if a Bank Becomes Undercapitalised?
A bank becomes undercapitalised when its capital falls below 20% of its risk-weighted assets. In this case, the Superintendency of Banks will initiate corrective measures to address the problem and ensure that the bank maintains sufficient capital.
Liquidation Process for an Insolvent Bank
If a bank becomes insolvent, all levels of supervision must be exhausted before it goes into liquidation. The process involves:
- Requesting funds to make payments as part of guaranteed deposits
- Selling the bank’s assets
- Collecting debts owed to the bank
- Notifying creditors in order of prevalence according to type of debt
Regulatory Implications for Entities Controlling Banks
Entities controlling banks are subject to broad regulating and oversight powers from regulatory entities, which include:
- Monitoring financial institutions
- Auditing financial statements
- Intervening in cases of non-compliance
- Supervising all financial activities
- Overseeing the overall stability of the financial system.