Financial Crime World

Chilean Banking Regulation: A Comprehensive Overview

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The Central Bank of Chile (CMF) is responsible for regulating and supervising the country’s banking system. This article will explore the key aspects of Chilean banking regulation, including capital requirements, shareholdings, liquidation, and resolution.

Capital Requirements

Chilean banks are required to maintain a minimum level of capital to ensure their stability and soundness. The aggregate of Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1) cannot be less than 6% of the bank’s risk-weighted assets, net of required provisions.

  • Banks can also issue subordinated loans (Tier 2) up to 50% of their basic capital, less 20% for each year that elapses from six years before maturity.
  • Additionally, banks are required to maintain an additional countercyclical buffer between 0% and 2.5% of their risk-weighted assets, net of required provisions.

Shareholdings and Acquisition of Control

The CMF requires authorization to acquire more than 10% of a bank’s equity. The acquirer must comply with Article 28 of the General Banking Act, which establishes requirements for ownership and behavior.

  • Foreign investors wishing to acquire a significant shareholding in a Chilean bank must comply with the requirements outlined in Article 32 of the General Banking Act.

Liquidation and Resolution

In the event of financial distress or deficiency, banks are subject to a specific insolvency regime governed by Articles 112-119 of Title XIV of the General Banking Act. The CMF has the authority to appoint a liquidator and revoke the bank’s license if necessary.

  • Banks in liquidation must prioritize the payment of deposits with their cash balance, funds deposited at the Central Bank, or technical reserve.
  • If these funds are insufficient, the liquidator is authorized to sell other assets to meet depositors’ claims.

Powers of the Regulator

The CMF has significant powers to intervene in the event of a bank’s financial instability. These include:

  • Revoking the bank’s license
  • Declaring it in compulsory liquidation
  • Appointing one or more liquidators

In addition, the CMF can instruct banks to submit stabilization plans if it becomes aware of a situation that threatens the bank’s financial stability.

Transfers of Business

In the event of liquidation, the liquidator appointed by the CMF is empowered to transfer part of the bank’s operations to another bank. Article 138 of the General Banking Act sets out a simplified regime for banks in liquidation that voluntarily transfer assets to another financial institution.

Overall, Chilean banking regulation aims to ensure the stability and soundness of the country’s banking system by imposing strict capital requirements, regulating shareholdings, and providing mechanisms for liquidation and resolution.