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Ecuador’s Banking Sector: Capital Adequacy Guidelines and Insolvency Processes

In an effort to ensure the stability of Ecuador’s banking sector, the Superintendency of Banks (SB) has implemented strict capital adequacy guidelines for banks operating in the country. According to these guidelines, a bank must maintain a minimum level of capitalization to ensure its financial stability and protect depositors’ interests.

Enforcing Capital Adequacy Guidelines

The SB will order a bank to increase its capital if it falls below the minimum required threshold. If the bank fails to comply with this directive within the specified timeframe, it will be placed into mandatory liquidation. In such cases, a receiver will be appointed ex officio to manage the liquidation process.

Undercapitalization and Insolvency

If a bank becomes undercapitalized or insolvent, the SB will initiate a series of corrective measures to address the issue. These measures may include recapitalizing the bank, reorganizing its operations, or appointing a receiver to manage the bank’s assets. If these efforts fail, the SB will issue a resolution ordering the liquidation of the bank and appoint a liquidator to oversee the process.

Liquidation Process

In the event of a bank’s liquidation, the following steps will be taken:

  • The bank’s management and board of directors will be dissolved.
  • A receiver will be appointed to manage the liquidation process.
  • Creditors will be notified and ranked in order of priority (labour claims, taxes, debts owed to third parties, and general creditors).
  • The receiver will collect debt and sell assets to pay off creditors.
  • Any remaining funds will be distributed to shareholders.

Recent and Future Changes

In recent years, Ecuador has implemented measures to strengthen its banking sector, including the establishment of a fund for the development of people’s and solidarity financial institutions. State-owned banks are required to contribute up to 50% of their profits to this fund.

Ownership Restrictions

The SB regulates ownership restrictions in Ecuador’s banking sector to prevent excessive concentration of power and ensure stability. These restrictions include:

  • Direct controlling interest: An individual or entity has direct control when they own more than 6% of a bank’s subscribed and paid-in capital or shares worth more than $11,270.
  • Indirect controlling interest: An individual or entity may have indirect control if they are related to the bank’s administrators or shareholders.

Foreign Ownership

Foreign individuals or entities can invest in Ecuadorian banks without restrictions. However, foreign financial institutions operating through branches or representation offices in Ecuador are jointly liable for their obligations in the country.

Implications and Responsibilities

Entities that control banks in Ecuador must comply with strict regulations and oversight powers exercised by the SB. These powers include setting interest rates, defining monetary policy, monitoring and supervising banks, and reviewing unusual economic operations.

The implementation of these measures aims to ensure the stability and security of Ecuador’s banking sector, protecting depositors’ interests and promoting financial stability in the country.