Improving Panama’s Bank Resolution Framework

Panama’s bank resolution framework has several gaps that do not fully comply with international standards. The Superintendency of Banks of Panama (SBP) acknowledges these gaps and is working to address them through the drafting of legislation.

Gaps in the Current Framework

• The proposed reform legislation does not adequately address key areas necessary for orderly resolution, including:
  • Funding of bank resolutions
  • Bail-in mechanisms
• These limitations hinder Panama’s ability to effectively resolve banking crises and protect depositors’ interests

Recommendations for Improvement

Enhancing the Resolution Framework

1. Funding Mechanism: Improve the funding mechanism for bank resolutions, including recapitalization via bail-in and providing temporary liquidity through a viable public backstop.
2. Corrective Action Powers: Enhance the Corrective Action powers set out in the Banking Law to better address identified risks or weaknesses in banks.
3. Deposit Insurance System: Consider establishing a Deposit Insurance System (DIS) to provide depositors with greater protection.
4. Supervisory and Regulatory Framework: Strengthen the supervisory and regulatory framework to ensure that banks are subject to adequate oversight and risk management practices.

Next Steps

It is essential for Panama’s authorities to continue working towards strengthening its bank resolution framework to ensure the stability of the financial system and protect depositors’ interests. By implementing these recommendations, Panama can improve its ability to effectively resolve banking crises and maintain a stable and secure financial environment.