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 in a country that needs to generate jobs and therefore, loans for productive purposes, however 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?
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