Guacara is not Basel

The credit portfolio of the Venezuelan banks, which in 1982 amounted to 16,000 million dollars, by June 2002, in constant 1982 dollars, barely reached 3,300 million dollars, that is, 21% of that of 1982. Being the case that levels as low as these have not been seen since the end of 1996.

In an article that I published in June 1997, I warned about the danger that, faced with the panic of falling into another banking crisis, we would exaggerate banking regulations, forgetting the main function of banking, which should be none other than be an active agent in the economic development of the country and for which the license is granted.

Since then, I have argued in multiple articles that we have to take care of the Basel banking regulations, which as part of the globalization process, seek to be imposed throughout the world, since these, although they may be logical for a developed country, , which perhaps only seeks to take care of its money, may be too strict for a developing country like ours.

You will then understand the reason for my anguish, when in a full-page interview published in a national newspaper, the new superintendent of banks did not mention a word about how banking can promote economic growth and limited himself to testifying about restrictive aspects of the regulation, with phrases such as: “we are the strategic ally of the system to guarantee deposits…” and “I have set the objective of adapting the system's regulations to the fundamental principles of Basel.”

Given the deep economic crisis in which we find ourselves immersed, if I were superintendent, on the contrary, I would do nothing other than try to determine if the current regulations could, in some way, be unnecessarily slowing down the granting of credits and, if so, Thus, I would proceed to modify them... whatever Basel says.

In any case, it should be noted that the impact that one or another type of banking regulation may have on the health of the financial system will always be infinitely less than that on the real health of the economy in which banking operates.

If there is something worrying about globalization, it is that that category of dangerous public officials, who limited themselves to developing regulations from their air-conditioned offices in Caracas, ignoring the real world, continue doing the same today, but from even more remote offices... in Basel.

Translated from article published in TalCual, Caracas, August 14 2002

 

Our economical policies suffer from inferiority complex

Financial Regulations: …our country has adopted, without blinking an eye, the regulations coming out of the Basel Committee, are more appropriate for the banking sector of a developed country than for ours. There is nothing wrong being a developing country, the bad is only to believe that by just adopting different postures, one could reach a different degree of maturity… just like the little girl who borrows mother´s lipstick in order to feel big.

Beware of bank consolidation (An early manifesto against too big to fail and too hard to govern banks, and against too few bank regulation criteria)

Every day there are fewer banks in the world. Those horror stories about bank clients trying to discuss with anonymous voices on the phone about fraudulent uses of their credit cards, while trying desperately to sound as innocent as they are, should make us think twice about the possibility that someday we will, in the best Kafka style, have just one bank. 

But apart from these experiences sometimes worthy of a Stephen King, bank consolidation, a trend that we have been sold as a marvel, may contain other risks not discussed enough - or happily ignored. Among these the following: 

Low risk diversification: Whatever the authorities do to ensure the diversification of banks, there is no doubt that fewer banks mean lesser baskets where to carry the eggs. When I read that during the first four years of the decade of the 30’s in the United States, a total of 9,000 banks failed- I wonder what would have become of that country if it then had only one single bank. 

The regulatory risk: Before there were many countries and many ways of how to regulate banks. Today, with Basel proudly issuing rules that should apply worldwide, the effects of any mistake could be truly explosive. 

Excessive similarity: Encouraging banks to adopt common rules and standards, is to ignore the differences between economies, so some countries end up with inadequate banking systems not tailored to their needs. Certainly, regulations whose main objective appears to be only to preserve bank capital, conflict directly with other banking functions, such as promoting economic growth, and democratize access to capital. 

Low diversity of criteria: A smaller number of participants, less diversity of opinion and, with it, increased risk of misconceptions prevail. Whoever doubts, read the dimensional analysis that ratings agencies publish. 

Backlash: The development of decision-making processes has benefits but also risks. Thus we see that the speed of information itself, which promotes quick and immediate response, can exacerbate problems. Before, those who took the problem home to study it, and those who simply found out late, provided the market a damper, which often might have saved it from hurried and ill-conceived reactions. 

Few clear benefits: To date we have not seen a foreign bank grant for example mortgage loans with globalized terms of maturity and interests. In this respect there seems not to be so many clear benefits of a global bank, when it operates only replacing local banks. 

Cost of global aid: When banks in Venezuela suffered their last crisis, among other reasons because of buying other banks at inflated prices, the cost of that was sadly but logically paid by our country. Today, with globalized banks, and which are not immune to commit equally dumb things, like also buying banks at excessive prices, who will then pay the bill? 

Today, when the world seems to be asking much for bank mergers or consolidations, I wonder if we on the contrary should be imposing on banks special reserves depending on their size. The bigger the bank is, the worse the fall, and the greater our need to avoid being hurt. 

Translated from El Universal, March 7, 2001

Local banks and global regulations

Many still have in mind the latest crisis in the banking sector in Venezuela, a memory refreshed by the recent Cavendes incident. Hence, public opinion demands from banks, first of all, greater security in their placements. Additionally, apart from being provided with an efficient service in the operational management of their funds and eventually being granted some consumer credit, there are few other expectations that a normal client has regarding their bank.

That’s why in the ensuing debate two fundamental purposes of banks are often forgotten. That to be an active agent in the process of generating economic growth and to collaborate in the function of democratizing capital. In short, to allow access to capital to those people or regions that, even lacking resources, have initiatives and the will to work.

In Venezuela, until recently, the approval of a banking license depended, at least in theory, on how it was intended to fulfill such social functions, without the solvency to repay the money in the future seeming to be more relevant. How far is this from being true today!

In constant 1982-dollar terms, the total loan portfolio of banks in Venezuela for December of that year was around 16,000 million dollars. In February 2000 it was located at just about 5,300 million dollars – including consumer loans. These figures show a real crisis of growth and although the recent process of bank mergers in Venezuela may manage to generate, at the deposit-taking level, certain operational savings, however, it is not very clear how it should contribute to reactivating the economy.

When thinking about it, I believe that it’s also necessary to question the import, from Basel, of banking regulations, more appropriate for already developed countries, than for developing countries like ours. Many of the problems arise from the mere fact that since such provisions were developed for environments of certain macroeconomic stability, when transplanted in countries with inflation or exchange rate volatility, many times they become inoperative and even counterproductive.

In 1975 John Kenneth Galbraith, in his book "Money, its Origin and Destination", advanced the thesis that one of the fundamental reasons for the economic development of the West and Southwest of the United States in the last century was achieved, it was the existence of an aggressive and poorly regulated bank, which frequently went bankrupt, causing great losses to individual depositors, but which, due to an agile and flexible credit policy, left a trail of development.

Today, when contemplating the recession that reigns in our country and without making in any way an apology for the crimes that could have been present, the temptation arises to wonder if the country was wrong to cause its fugitive bankers to seek refuge in other countries, where they spend their money and efforts. Wouldn't it have been preferable to have forced them to develop, for example, the Orinoco Apure axis?

It is also timely to question the fact that notwithstanding the country needs to generate jobs and therefore, loans for productive purposes, its regulations are more oriented to facilitate the granting of consumer credit. Regarding the democratization of capital, Galbraith himself shrewdly indicates that obviously the lower the degree of regulations that affect banking activity, the greater the possibility of democratizing capital.

The saddest thing about the entire chapter on banking regulations is that in truth the risks not only persist but sometimes, when there are mergers, they can multiply, due to the fact that "the bigger they fall, the harder they fall."

And since we're talking about mergers, I can't resist the temptation to make a comment from a global perspective. A local bank has a serious commitment to its area of influence, since it simply has nowhere to go. Speculating that the process of globalization of local banking began when the Banco de Los Llanos, from Valle la Pascua, became the Banco Principal, from Caracas - we observed that this did not help us much. Could the process that leads to managing our bank from Madrid be better? 

 In El Universal of Caracas

Financial misregulation

July 2000. Extracted and translated from an Op-Ed in Venezuela titled "Our full of complexes economic policy."

"Financial regulations. Banking, in addition to promoting savings, offering reasonable returns and certainty of recovery, must fulfill the functions of supporting economic growth and democratizing access to capital. In terms of banking regulation, it would seem that the country has forgotten these last two functions, accepting, without blinking, the Basel regulations, much more appropriate for the banking of an already developed country than for ours. There is nothing wrong with being a developing country, what is wrong is believing that by simply adopting different positions, you can reach another level of maturity – like a little girl who borrows her mother's lipstick to feel grown up."

Finance for Development

Kafka and global banking

My partner had a problem with identity theft which forced him to “negotiate” with his bank. During his ordeal I remember thinking "thank God we still have several banks to work with". Imagine if we would have had to discuss this issue with an official of the One and Only World Bank. Without a doubt this would present us with a future full of horrendous Kafkaesque possibilities.

This led me to think about the consolidation currently going on among banks. With every day that passes we have fewer and fewer banking institutions worldwide with which to work. This trend has been marketed as one of the seven wonders of globalization. .. and I believe the trend introduces other risks which have either not been sufficiently commented on or which have simply been ignored. Among these I can identify the following:

A diminished diversification of risk. No matter what bank regulators can invent to guarantee the diversification of risks in each individual bank, there is no doubt in my mind that less institutions means less baskets in which to put one’s eggs. One often reads that during the first four years of the 1930’s decade in the U.S.A., a total of 9,000 banks went under. One can easily ask what would have happened to the U.S.A. if there had been only one big bank at that time.

The risk of regulation. In the past there were many countries and many forms of regulation. Today, norms and regulation are haughtily put into place that transcend borders and are applicable worldwide without considering that the after effects of any mistake could be explosive.

Excessive similitude. By trying to insure that all banks adopt the same rules and norms as established in Basle, we are also pushing them into coming ever closer and closer to each other in their way of conducting business. Unfortunately, however, nor are all countries the same, nor are all economies alike. This means that some countries and economies necessarily will end up with banking systems that do not adapt to their individual needs.

I remember that John K. Galbraith once wrote that the economic development of the west of USA was helped by the fact that in the eastern part of the United States, banks were big and solid but that in the west, banks tended to work with much greater flexibility. The fact that some of these banks went bankrupt from time to time was simply taken as a normal cost inherent in development. Today, Venezuela's economy might be in dire need of some Wild West banks.

The cost of global assistance. When Venezuela’s banking system went down the drain, there is no doubt that the cost of the crisis was paid integrally by the country itself. In today’s world, when we see that a series of international banks are investing in our country’s institutions, I often wonder what will happen when one of these behemoths runs into serious trouble in its own country. Will we have to pay for our part of the crisis, less than our part of the crisis or more than our part of the crisis?

As bank mergers and acquisitions increase and stock exchanges worldwide call for more consolidations, I have my doubts. Should we not be imposing the creation of special reserves for especially large banks? The larger they are, the harder they fall, and so the greater the need to avoid disaster.

Abridged version of an article published February 2000 in the Daily Journal of Caracas.

About the SEC, the human factor, and laughing

A couple of days ago, our SEC reported that their pension fund had also been the victim of a fraudulent stock-managing firm, and that they had lost a lot of money.

I also read recently about the Mars Climate Orbiter spaceship that, after having required an investment of 125 million dollars, had to be declared as a total loss due to a technical confusion derived from simultaneously applying metric and English measures.

If what happened to NASA or what happened to our SEC is of any mutual comfort to them, I don’t care, but what I do hope is that they have learned a bit more about humility.

I bring this opinion to the table since I recently heard that our SEC was now establishing higher capital requirements for stockbroker firms, arguing that “. . . the weak have to merge to remain. We have to get rid of the rotten apples so that we can renew the trust in the system.” As I read it, it establishes a very dangerous relationship between weak and rotten. In fact, the financially weakest stockbroker in the system could be providing the most honest services while the big ones, just because of their size, can also bring down the whole world. It has always surprised me how the financial regulatory authorities, while preaching the value of diversification, act in favor of concentration.

The SEC should not substitute the need for capital in place of the need for ethics, nor should it allow that fraudulent behavior hides amid the anonymity of huge firms. In this respect, let us not forget that the risk of social sanctions should be one of the most fundamental tools in controlling financial activities.

If there is a relation between weakness and a rotten apple, it could really be in the SEC itself, since, though they frequently complain about the lack of resources, that doesn’t stop them from transmitting institutional messages about how well they are fulfilling their responsibilities. Perhaps the best thing that the SEC could do is to stop all their actions that are creating a false sense of security in the investor, acknowledging the absence of any supervisory capacity, and instead stamp each share prospectus with a big “BUYERS BEWARE.”

We read an article in Newsweek (“Giving Big Blue a Shiner, November 1999), about the surprising 20% drop in value that IBM shares had suffered in just one day. It also states that this drop was not in any way the result of any especially surprising event. The purported lesson of the article was “To teach not to take too seriously the investigative capacity of Wall Street and to remember to laugh next time you hear that the stock-market is a rational place where the big investors know what they are doing.” I would also like to suggest remembering to laugh next time a regulator presumptuously assures you he is doing his job.

And last I want to comment on another risk of regulations. Reading about accidents in nuclear reactors in Japan and about the risks of proliferation of nuclear weapons there is no doubt that the fears of a nuclear Big Bang are being renewed.

That said, the possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause the collapse of the OWB (the only bank in the world) or of the last financial dinosaur that survives at that moment.


Currently market forces favors the larger the entity is, be it banks, law firms, auditing firms, brokers, etc. Perhaps one of the things that the authorities could do, in order to diversify risks, is to create a tax on size.

Here the version in Spanish:

Regulations as enemies of bank missions

Note: Now 25 years later, when hearing about efforts to regulate cryptocurrencies, something which will clearly dilute the “caveat emptor”, the “buyers beware” principle, again I find reasons to refer to this article.

In Venezuela, much has been discussed about the solvency of the financial intermediation entities, mainly banking. In virtue of the great attention paid to the subject of banking regulation throughout the world and our recent banking crisis being quite recent, this should not surprise us.

In the debate I think, it is important to remember, that the functions of the financial sector are not limited, simply, to return the money received from its depositors, since, if so, the traditional mattress could be sufficient to fulfill this mission.

Apart from providing other opportunities, which serve to stimulate national savings, as well as fulfilling the task of facilitating monetary flows, there are two other functions, of great social importance, that banks must comply with. The first is to be a very active agent in the process of generating wealth and the second, to collaborate in the function of democratizing capital, that is, allowing access to capital to those people who, lacking resources, have initiatives and will to work.

Supposedly, with the commitment and ability to fulfill these last two functions, the creation and distribution of wealth, both the application and the approval of a banking license were justified. How far is it from being true today! Next, I present some reflections on the subject.

In 1975 John Kenneth Galbraith, in his book titled "Money, whence it came, where it went", advanced the thesis that one of the fundamental reasons, for the past century was achieved, the economic development of the West and the Southwest of the States United, it was the existence of an aggressive and unregulated bank, which frequently broke down, causing great losses to individual depositors, but which, because of an agile and flexible credit policy, left a trail of development.

As for the democratization of capital, it is clear that the new banking regulation, now more than ever, obliges the bank to lend to the one who has and refuse as a credit client, the one who does not. The days when a banker, on the simple basis of a character trial, could approve a loan, without having to incur the cost of creating reserves, which presumes in advance the non-payment, went down in history.

Of course, with the foregoing, I do not refer to the immense amounts consumer loans. Today, we can question the wisdom of the regulator, noting the ease with which a consumer gets a loan and compare it with how difficult it can be to acquire a loan for productive purposes.

The saddest part of the regulatory chapter is that it never really immunizes us against risk. Even in portfolio based on probabilistic expectations and compensations by means of high interest rates we know that, one way or another, risk remain… and in many cases even trying to regulate, runs the risk of giving the impression that by means of strict regulations risks have disappeared. Sometimes it's in good faith... sometimes it's only faith. When for example the SEC (Venezuela) arrogantly presumes of performing a significant mission, we know it is pure baloney.

Frequently, in matters of financial regulations, the most honest, logical and efficient is simply alert to alert about the risks and allow the market, by assigning prices for these, to develop its own paths.

I do not propose, not for a moment, that the State abandons completely the regulatory functions, much the contrary, what I propose is that it assumes it correctly. History is full of examples of where the State, by meddling to avoid damages, caused infinite larger damages. In the case of banking regulations developed to be applied in developed countries, I am not sure we are doing our country a favor adopting them with so much fervor.

But what are we to do? Regulations are fashionable and there are many bureaucrats in the world trying to find their little golden niche. I just read an article about a county in Maryland, USA, where, in order to be able to work as an astrologer and provider of horoscopes, you need to be registered and obtain a license in order to “read the hand palms. The cost of such license is 150 dollars.”

PS. And indeed the Basel Committee's risk weighted capital requirements has caused infinite damages.

PS. The page with the details of Maryland certified astrologers has disappeared, it might have been an early case of fake news :-( Now the certification is issued by AFA Certified Astrologers - American Federation of Astrologers

PS. And now, 25 years later, I find myself chatting with artificial intelligence about these bank regulations.

Economía Hoy

Speaking about trust and distrust

International financial risk rating entities are once again issuing their results for Venezuela. And once again, everyone begins to tremble. There is confidence! Ooops, there is no confidence! The debate is once again on the table and I take advantage of this to share some of my reflections on this issue with my readers.

It could be that I am not exact in my appreciation, but then again, when dealing with something as subjective as confidence, it shouldn’t really make much difference. In 1982, the then Minister of Finance decided that the country should be paying interest rates well below those being required by the international banking community in order to renegotiate part of Venezuela’s foreign debt. This decision, which blocked the restructuring of the debt, together with the crisis in Mexico and other indebted nations, combined to unleash the events which resulted in the devaluation of Black Friday of February 1983.

Obviously, the Minister was severely criticized. I considered this criticism to be unjust since, as far as I was concerned, the Minister was in reality a hero of the nation; almost enough so as to merit a statue in some important plaza. In my opinion, his actions, which generated distrust internationally, saved the country from billions of dollars in debt, which would have bloated the amounts actually accounted for after the disaster. Few heroes can be proven to have undertaken such important deeds for the good of the nation.

In reality, to inspire confidence in others should be of no concern for the country, while it has not been able to find or generate an economic and administrative model which inspire confidence in its own people. Trying to do so simply confuses the search for in depth solutions. In addition, the people for whom instruments of measurement are designed don’t include those foreigners whose confidence we really seek. Rating agencies rank a country’s measure, principally the latter’s ability to service its debt. As such, their market is comprised of bankers and investors who simply wish to make a short-term financial investment. Nothing of special importance to the country.

Those foreigners who could really interest us are the ones who come to the country with resources, the ones with the intention of remaining here for the long-term, to put up factories, cultivate the land, generate employment and maybe even raise a Venezuelan family. That is to say, the one whose objectives are one and the same as those of the nation. The opinions and confidence of these people are not measured at all.

In addition, both the methods and measuring instruments as well as the professionals actually doing the measuring, probably continue to be the same. They are the same ones that not very long ago argued that it was impossible for a country to be bankrupt, thereby justifying stratospheric limits for indebtedness with such enthusiasm that both bankers (who by the way proved to be unprofessional in most cases) and the common Venezuelan, upon hearing this siren song, joined forces and created the mix-up of the century.

For those of you who may have any doubts about this, I suggest you look at the ranking of six months ago. In those listings, the majority of the Asian countries looked like nothing short of marvel of creation. Haven’t you recently heard all of the crying over the Asian financial crisis?

We must evidently listen to the opinions of the credit agencies. Their measurements reflect many variables of great importance for the well being of the country. Unfortunately they also are the principal source of information about the country for many foreigners. In other words, to lie awake at night worrying about ranking doesn’t make sense.

You may remember the story about the anguished debtor who could not sleep, but found a way of finally getting a night’s rest by transferring his insomnia to his banker with the simple words “I can’t pay you”. In this case, something similar occurs. I personally sleep better when Venezuela’s ranking goes down, since I am then sure that lenders will not be making additional resources available (in my name as well as in the name of my children, grandchildren, great-grandchildren and other future debtors) to governments that insist on misspending them.

The day the government, during electoral period, pays more attention to the opinions of its humble subjects that to those of the glamorous international agencies, we will finally stand a chance of making it out of our standard situation. The latter, according to all international norms I know of, can be objectively classified simply as “poor and moody”

In the Daily Journal, Caracas February 26, 1998

Banking - between mirrors and piglets

Although I have never worked in the banking sector, I do remember, during the latter part of the seventies, being proud about the development of Venezuelan banks. I thoroughly enjoyed listening to anecdotes such as the fact that the most popular software application (i.e. SAFE) for the management of on-line banking operations had been developed in Venezuela. 

I was also aware of the fact that on-line banking in the country was being applied to a much greater degree than in the United States. I loved to read in the press about the participation of Venezuelan financial institutions in international loan syndications, although while doing so I pondered about the sanity of this participation and had the same ambiguous love-hate feeling as when I flew overseas with VIASA, our flagship airline. 

Finally, the fact that Venezuelan banks routinely appeared in “The Banker” magazine’s listing of largest banks, made reading this publication in London waiting rooms quite agreeable.

Twenty years later, I cannot but feel somewhat humiliated when I am asked to feel respectful and thankful that we are now to be the beneficiaries of new banking technology that in my humble opinion for the moment merely seems to imply substituting the small mirrors used by the Conquistadores to seduce the continent’s Indians with little plastic piglets.

Let me make it clear that my possible observations as a Patriot about the strategies established by financial Neo-Royalists are certainly not based on the rejection of the presence of foreign banks in general, much less of Spanish financial institutions, which due to their high profile will undoubtedly bear the brunt of humoristic expressions so proper of the Venezuelan populace. 

On the contrary, I am certain that there is an important place for foreign banks in Venezuela, although I would have liked to see an early aperture of the financial system aimed more at strengthening than at the reconstruction, in the style of the mythical Phoenix, of a system in ruins.

What motivates me is that an excessive praise heaped on the newly arrived foreign bankers, in addition to possibly causing unnecessary damage to the egos of our local bankers (that famous patriotic cry, “Vuelvan Caras”, is already audible in banking circles), clearly tends to confuse the issues and principal causes of the collapse of our financial system.

History can be written in a few words. A series of devaluations, the breach of exchange guarantee contracts, restrictions on offshore positions, obligatory preferential treatment for certain sectors of the economy, minimized participation in the financing of petroleum industry projects and surprising macroeconomic policy decisions such as the application of exorbitantly high real interest rates. 

All these factors caused a drastic decline in the quality of bank loan portfolios and an erosion of their respective net worth values to a minimum. Responsibility for all these ills lies principally with the Central Government and their main cause is again the fundamental failing of our society, i.e. the excessive concentration of national wealth in the hands of the State.

Each case must by analyzed separately but in general terms, I’m certain that should the United States, the United Kingdom and even Spain have had to suffer through similar catastrophes, the mortality rate would have been the same or higher. Likewise, I’m sure that the future productivity of Venezuelan banks will depend more on the rectification of the State’s actions than on the masterly lessons in banking we may receive from, with all due respect, the Casa Cándido strategists (Casa Cándido is a restaurant in Segovia famous for its servings of roasted piglet).

A better supervision of the banking sector by a professional Superintendency; reasonable norms that regulate the banking activities without strangling it; development of management capabilities that would insure the proper handling of banking crises without multiplying their initial cost; and responsible, professional bankers. 

All the above certainly must exist in order to head off another financial tragedy in the future, but they are certainly not enough to avoid such disasters.

As long as the size of Venezuelan State is not reduced in proportion to the private sector and the State continues to impose its omnipresent influence over all aspects of national life, the possibility of creating and environment of economic rationality is remote. Without economic rationality there is no way to avoid another financial crisis. Today’s generation of local bankers hopefully has already learned its lesson and I sincerely hope our newly arrived visitors will not have to do so as well.

Puritanism in banking

In his book Money: Whence it came, where it went” (1975), John Kenneth Galbraith discusses banks and banking issues which I believe may be applicable to the Venezuela of today.

In one section, he addresses the function of banks in the creation of wealth. Galbraith speculates on the fact that one of the basic fundamentals of the accelerated growth experienced in the western and south-western parts of the United States during the past century was the existence of an aggressive banking sector working in a relatively unregulated environment.

Banks opened and closed doors and bankruptcies were frequent, but as a consequence of agile and flexible credit policies, even the banks that failed left a wake of development in their passing.

In a second section, Galbraith refers to the banks’ function of democratization of capital as they allow entities with initiative, ideas, and will to work although they initially lack the resources to participate in the region’s economic activity. In this second case, Galbraith states that as the regulations affecting the activities of the banking sector are increased, the possibilities of this democratization of capital would decrease. There is obviously a risk in lending to the poor.

In Venezuela, the last few years [the 1990s] have seen a debate, almost puritan in its fervor, relative to banking activity and how, through the implementation of increased controls, we could avoid a repeat of a banking crisis like the one suffered in 1994 at a cost of almost 20% of GDP. Up to a certain point, this seems natural in light of the trauma created by this crisis.

However, in a country in which unemployment increases daily and critical poverty spreads like powder, I believe we have definitely lost the perspective of the true function of a bank when I read about the preoccupation of our Bank Regulating Agency that “the increase in credit activity could be accompanied by the risk that loans awarded to new clients are not backed up with necessary support (guarantees)” and that as a result we must consider new restrictions on the sector.

It is obvious that we must ensure that banks do not overstep their bounds while exercising their primary functions—a mistake which in turn would result in costly rescue operations. We cannot, however, in lieu of perfecting this control, lose sight of the fact that the banks’ principal purpose should be to assist in the country’s economic development and that it is precisely with this purpose in mind that they are allowed to operate.

I cannot believe that any of the Venezuelan banks were awarded their charters based purely and simply on a blanket promise to return deposits. Additionally, when we talk about not returning deposits, nobody can deny that—should we add up the costs caused by the poor administration, sins, and crimes perpetrated by the local private banking sector throughout its history—this would turn out to be only a fraction of the monetary value of the comparable costs caused by the public/government sector.

Regulatory Puritanism can affect the banking sector in many ways. Among others, we can mention the fact that it could obligate the banks to accelerate unduly the foreclosure and liquidation of a business client simply because the liquid value for the bank in the process of foreclosure is much higher than the value at which the bank is forced to carry the asset on its books. In the Venezuela of today, we do not have the social flexibility to be able to afford unnecessary foreclosures and liquidations.

In order to comprehend the process involved in the accounting of losses in a bank, one must understand that this does not necessarily have anything to do with actual and real losses, but rather with norms and regulations that require the creation of reserves. Obviously banks will be affected more or less depending on the severity of these norms. Currently, a comparative analysis would show that Venezuela has one of the most rigid and conservative sets of regulations in the world.

On top of this, we have arrived at this extreme situation from a base, extreme on the other end of the spectrum, in which not only was the regulatory framework unduly flexible, but in which, due to the absence of adequate supervision, the regulations were practically irrelevant.

Obviously, the process of going from one extreme to the other in the establishment of banking regulations is one of the explanations for the severe contraction of our banking sector. Until only a few years ago, Venezuela’s top banks were among the largest banks of Latin America. Today, they simply do not appear on the list.

It is evident that the financial health of the Venezuelan banking community requires an economic recovery and any Bank Superintendent complying with his mission should actively be supporting said recovery instead of, as sometimes seems evident, trying to receive distinctions for merit from Basel (home of the international bank regulatory agencies).

If we insist in maintaining a firm defeatist attitude which definitely does not represent a vision of growth for the future, we will most likely end up with the most reserved and solid banking sector in the world, adequately dressed in very conservative business suits, presiding over the funeral of the economy. I would much prefer their putting on some blue jeans and trying to get the economy moving.

As edited for "Voice and Noise" 2006

Originally published in The Daily Journal, Caracas, June 1997

PS. Here my 2019 letter to the Financial Stability Board

Traducción:

PURITANISMO BANCARIO

Con ocasión de una mudanza me reencontre con un libro escrito en 1975 por el reconocido economista John Keneth Galbraith titulado "Dinero. De donde vino y adonde fué" Ojeandolo me encontre con dos subrayados relativos a las funciones de la banca y los cuales creo son recordatorios oportunos en la Venezuela actual. El primer subrayado tiene que ver con la función creadora de riquezas que tiene la banca y donde Galbraith especula sobre el hecho de que una de las bases que fundamento en el siglo pasado en muy acelerado desarrollo del oeste y sur-oeste de los Estados Unidos era la existencia de una banca agresiva y no regulada que abria y cerraba puertas, quebrando con frecuencia, pero que, a consecuencia de una política de créditos agil y flexible, dejaba una estela de desarrollo. El segundo subrayado se refiere a la función democratizadora de capital que posee la banca al permitir a personas con iniciativas ideas y voluntad de trabajo pero sin recursos el participar en la actividad económica. En este último caso Galbraith indica con sagazidad que obviamente a menor grado de regulaciones que afecte la actividad bancaria, mayor es la posibilidad de democratizar el capital.

En Venezuela, durante los últimos años el debate relativo a la actividad bancaria se ha centrado con un fervor casi puritano sobre el como mediante el incremento de controles lograr evitar una repetición de la crisis bancaria. Hasta cierto punto lo anterior resulta natural ya que indudablemente la crisis bancaria venezolana fué traumática. Pero, cuando en una Venezuela donde el desempleo se incrementa a diário y la pobreza crítica se extiende como pólvora, se lee sobre una actual preocupación de la Superintendencia de Bancos por cuanto el "repunte de la actividad crediticia pueda traer consigo un riesgo en el otorgamiento de préstamos a nuevos clientes que no presenten los soportes necesarios." y por lo tanto hay que considerar nuevas restricciones, creo que definitivamente se ha perdido la perspectiva de la verdadera función de la banca.

Por supuesto se debe asegurar el que la banca no cometa excesos en el desempeño de sus funciones y que obligue acometer costosos rescates, pero en el ejercicio de dicha función controladora no puede perderse de vista de que el principal proposito de la banca debe ser coadyudar en el desarrollo económico del pais y justamente para cumplir dicha función es que se les permite operar. No creo que ninguno de los bancos venezolanos obtuvo su permiso de funcionamiento en base a una limitada promesa de devolver los depositos. Y si a la no devolución de depósitos vamos, nadie puede discutir que de sumar todos los costos de las malas administraciones, pecadillos, pecados y crimenes que toda la banca privada venezolana pueda haber acumulado en toda su historia, no llegarian ni a una fracción de haber causado perdidas en el valor del dinero comparable con los costos causados por el sector oficial. A tal fin y como simples ejemplos basta recordar los costos derivados del sistema de Recadi o simplemente aquellos derivados del manejo inadecuado de la crisis financieras y donde obviamente el costo que cobro el taller estatal por reparar el golpeado vehículo bancario venezolano, multiplico varias veces el costo original del daño.

Un puritanismo regulador puede afectar la banca de muchas formas. Entre los resultados podemos mencionar el que frecuentemente obliga la banca acelerar el proceso de liquidación de una empresa simplemente por el hecho de que el valor liquido que obtiene la banca en dicha liquidación supera los valores a los cuales se les permite mantenerlos contabilizados. En la Venezuela de hoy creo que no tenemos espacio social para permitirnos el lujo de cierres y liquidaciones no absolutamente necesarias.

Para entender el proceso del registro de las perdidas contables en un banco hay que comprender que estas a veces no tienen nada que ver con perdidas reales sino con simples exigencias normativas que obligan a la creación de reservas. De acuerdo a lo estricto de las normas la banca quedara afectado en mayor o menor grado. Actualmente cualquier analisis comparativo daria como resultado de que en Venezuela tenemos una de las normativas más rigidas y conservadoras del mundo. Para rematar, llegamos a dicho extremo, partiendo de una situación donde no solo las normativas eran muy flexibles sino que además, por la ausencia de una adecuada supervisión, eran practicamente irrelevantes.

Obviamente este proceso irracional de ir de un extremo a otro en la aplicacion de las regulaciones bancarias, y unido a la política devaluacionista de un sector fiscal ávido de recursos, implico un verdadero achicamiento del sector bancario. Hace pocos años Venezuela presentaba varios bancos entre los grandes bancos latinoamericanos, hoy en día ni siquiera aparecen en la lista.

Muchas veces y en respuesta a nerviosas interrogantes sobre la salud del sector bancario venezolano, originados sobre la cuantia de los ingresos extraordinarios, no me ha quedado otra respuesta que el indicar el hecho de que si a un banco le obligan reservar todo, pues todos sus ingresos futuros han de ser extraordinarios.

Resulta evidente que la misma salud financiera de la banca venezolana requiere de una urgente reactivación económica y una Superintendencia de Bancos que hoy estuviese cumpliendo sus funciones tendría que estar activamente apoyando dicha reactivación en vez de, como a veces se percibe, tratar de obtener distinciones al mérito emiitidos por Basilea. 

Si se persiste en mantener firme una actitud casi derrotista y que definitivamente no representa una visión de crecimiento futuro, puede que terminemos con la banca mas reservada y sólida del mundo, una banca vestida no de bluejean sino de etiqueta, pero lamentablemente no presenciando una fiesta sino el entierro económico de un pais.