Bank Regulation and Supervision in Ecuador
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Minimum Capital Requirement
The minimum capital requirement for a bank in Ecuador is 10% of its total risk assets. This ensures that banks maintain sufficient capital to absorb potential losses and maintain stability.
Failure to Meet Capital Requirements
If a bank fails to meet the minimum capital requirement, the oversight agency will order a capital increase. If the capitalization is not made within the granted term, the entity will enter into mandatory liquidation.
Insolvency Process
In the event that a bank becomes insolvent, all levels of supervision must be exhausted before issuing a resolution to liquidate the bank. This includes corrective measures prior to liquidation. Only if the problem cannot be cured will the bank go into liquidation.
Deposit Guarantee Fund
Depositors are protected up to US$11,270 per depositor, per bank, through a deposit guarantee fund. This ensures that deposits are insured and protected in case of a bank failure.
Oversight and Regulation
The Superintendency of Banks and other regulatory and oversight entities have broad regulating and oversight powers in the financial sector. They ensure that banks comply with regulations and maintain stability.
Undercapitalization
A bank becomes undercapitalized if its capital falls below 10% of its total risk assets. This can lead to a loss of confidence in the bank and potentially destabilize the financial system.
Management and Liquidation
When a bank is declared insolvent, all senior management, including the board of directors, will be cancelled. All procedures to collect credit in favor of the bank will begin.
Payment Order for Creditors
Creditors will be paid in the following order:
- Labour (employees and debts with the Ecuadorian Social Security Institute)
- Taxes
- Debts owed by the bank to third parties for which the bank has mortgages or pledges as collateral
- Creditors in general
Appeal Process
A bank’s management can appeal a resolution ordering the bank’s liquidation, but the effects of the resolution cannot be suspended.
Capital Adequacy Guidelines
No changes are expected with regard to adequate capital. However, an obligation has been included for state-owned banks to contribute up to 50% of their profits to a fund for the development of the people’s and solidarity financial sector.
Ownership Restrictions
An individual or company has direct controlling interest when one of the following conditions is met:
- They own 6% or more of subscribed and paid-in capital or capital stock.
- Even when the 6% condition is not met, they have shares in an amount equal to or greater than 600 times the income tax-exempt base fraction.
Foreign Ownership
No restrictions are imposed on foreign ownership of banks. However, a foreign financial institution operating through a branch or representation office is jointly liable for the obligations of the branch or representation office in Ecuador.