Financial Crime World

Panama’s Financial Stability and Bank Resolution Framework: A Review by the International Monetary Fund

The International Monetary Fund (IMF) has conducted an assessment of Panama’s financial stability and bank resolution framework. The key points from this report are outlined below.

Banking Sector Overview

  • Dollarized economy: Panama has a fully dollarized economy, with no local currency.
  • Significant banking system: The banking system in Panama is significant in terms of size and complexity.

Role of the National Bank of Panama (BNP)

  • Unique role: BNP plays a unique and critical role as a state-owned commercial bank.
  • Depositary for State’s financial resources: It serves as a depositary for the State’s financial resources.
  • Financial market utility functions: BNP fulfills various financial market utility functions.

Complexity of Large Banking Groups

  • Multi-tiered holding companies: Large Panamanian banks have complex organizational and ownership structures.
  • Non-bank subsidiaries and affiliates: They include non-bank subsidiaries and affiliates.
  • Commercial and operational entities: Commercial and operational entities are also part of these groups.

Resolution Challenges

  • The IMF notes that the current approach to bank resolution has not changed since the prior Financial Sector Assessment Program (FSAP).
  • Need for improvement in legal framework: There is a need for improvement in the legal framework.

Review of the Resolution Framework

  • Panamanian authorities have reviewed the current framework.
  • Not compatible with international standards: The current framework is not compatible with international standards, as set forth in the Key Attributes.

Draft Legislation to Strengthen the Bank Resolution Framework

  • SBP has drafted legislation to address gaps in the current framework and expedite the resolution process.
  • Remains under deliberation: The draft law remains under deliberation.

Gaps Remaining in the Proposed Reform Legislation

  • Although the proposed reform is encouraging, material gaps remain that should be addressed.
  • Approach to funding of bank resolutions: There are gaps remaining regarding the approach to funding of bank resolutions and bail-in mechanisms.

Importance of Addressing Remaining Gaps

  • The IMF recommends that Panamanian authorities continue to improve the resolution framework and address remaining gaps.
  • Moving forward in conjunction with any changes or enhancements to the financial safety net: They should move forward in conjunction with any changes or enhancements to the financial safety net.

Role of Superintendency of Banks and Public Enterprises (SBP)

  • SBP has exclusive competence to regulate and supervise banks.
  • Granted powers to address identified risks and weaknesses: It is granted powers to address identified risks and weaknesses.

Corrective Action Powers

  • The Corrective Action powers set out in the Banking Law represent the current resolution toolkit in Panama.
  • Applicable only to banks, including state-owned banks: They are applicable only to banks, including state-owned banks.

Need for Reform

  • The IMF notes that the proposed reform legislation does not address key areas necessary for orderly resolution.
  • Further improvement in the bank resolution framework is needed: There is a need for further improvement in the bank resolution framework.