Ecuador’s Banking Sector: Deposit Requirements and Fund-Raising Efforts

Maintaining Stability through Deposit Requirements

In an effort to prevent financial crises, Ecuador has implemented strict deposit requirements for its banking sector. According to the Superintendency of Banks, financial institutions with assets over US$1 billion are required to maintain a legal banking reserve of 5% of their total assets, while those with assets under this threshold must hold a reserve of 2%. These deposits are held at the Central Bank and do not bear interest.

Consequences of Non-Compliance

Failure to meet these deposit requirements can result in severe consequences. The Superintendency of Banks will order financial institutions that fail to meet the stipulated percentage to contribute the necessary funds immediately. In extreme cases, undercapitalized banks may be placed into mandatory liquidation, a process that involves appointing a receiver and liquidating the bank’s assets.

Monitoring Foreign Financial Entities

The solvency of foreign financial entities in which Ecuadorian financial entities have a significant stake is also closely monitored. The countries where these entities are headquartered will determine their capital adequacy, but this must be at least 9% of their total assets or higher than the minimum established by the Board.

Corrective Measures and Liquidation

In the event of a bank failure, the Superintendency of Banks will initiate corrective measures to prevent insolvency and ensure depositors’ rights are protected. If these efforts fail, the bank may be placed into liquidation, with a liquidator appointed to oversee the process. Creditors will then be notified and paid out in order of priority.

Ownership Restrictions

The banking sector is also subject to strict ownership restrictions. Individuals or companies can have direct controlling interest if they own 6% or more of a bank’s subscribed and paid-in capital or capital stock, or if they have shares worth at least 600 times the income tax-exempt base fraction (currently US$11,270).

Foreign Investment

Foreign individuals or legal persons are also allowed to invest in Ecuadorian banks without restrictions. However, foreign financial institutions operating through branches or representation offices in Ecuador are jointly liable for their obligations.

Recent Developments

In recent years, there have been no significant changes to Ecuador’s capital adequacy guidelines. However, the public financial sector is required to establish a fund for the development of people’s and solidarity financial sectors, with state-owned banks contributing up to 20% of their net income.

Conclusion

Overall, Ecuador’s banking sector is subject to strict regulations aimed at preventing financial crises and protecting depositors’ interests. While there are some restrictions on foreign ownership, these are designed to ensure that foreign investors operate in a way that is consistent with the country’s financial stability goals.