Chile’s Central Bank Declares Systemically Important Banks and Imposes Additional Capital Requirements

The Chilean Central Bank (CMF) has declared several banks as systemically important financial institutions (SIFIs), imposing additional capital requirements on them to ensure the stability of the country’s banking sector.

Systemically Important Financial Institutions (SIFIs)

Under Article 66 quáter of the General Banking Act, SIFIs are required to maintain a higher level of capital adequacy in order to absorb potential losses and maintain confidence in the financial system. The CMF has also imposed additional capital requirements on banks that show risks not properly covered by existing rules, including:

• An additional basic capital of up to 4% of their risk-weighted assets, net of required provisions.

Shareholdings and Acquisition of Control

In related news, the CMF has introduced new requirements for foreign investors seeking to acquire significant shareholdings in Chilean banks. Under Article 29 of the General Banking Act, foreign investors must comply with specific rules and regulations governing foreign shareholdings in banks.

• The CMF’s move is aimed at ensuring that foreign investors do not pose a risk to the stability of the financial system.
• New restrictions have been introduced on the acquisition of control of Chilean banks by foreign entities.

Liquidation and Resolution

In the event of a bank failure, the CMF will work to ensure an orderly resolution of the institution. Under Article 112 of the General Banking Act, banks in financial distress are subject to a specific insolvency regime.

• The agency has introduced new powers to designate a delegate inspector or provisional manager to oversee the resolution process.
• The goal is to minimize disruptions to the financial system and protect depositors’ interests.

Powers of the Regulator

The CMF has been granted new powers to regulate and supervise Chilean banks. Under Article 66 quinquies of the General Banking Act, the agency can:

• Instruct a bank to submit a stabilization plan if it becomes aware of a situation that threatens the bank’s financial stability.
• Designate a delegate inspector or provisional manager to oversee the resolution process if the plan is rejected or not filed.
• Revoke a bank’s banking licence and declare it in compulsory liquidation if necessary.

Transfers of Business

In the event of a bank failure, the CMF will work to ensure an orderly transfer of business to another institution. Under Article 138 of the General Banking Act, banks in liquidation can voluntarily transfer assets to another financial institution without requiring notification to the regulator.

• The goal is to minimize disruptions to the financial system and protect depositors’ interests.
• The agency will continue to work closely with other regulatory agencies to ensure an orderly resolution of any bank failures.