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Thursday, March 30, 2023

Are there sufficient funds to avoid a bank run?

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The solvency of the banks is the topic that dominates the world financial scene this week as a result of the bankruptcy of the Silicon Valley Bank (SVB)) and the uncertainty generated by the liquidity problem of the Credit Suisse.

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Uruguay, which experienced its last financial system crisis in 2002, is far from having a contagion effect from these fluctuations that did hit, for example, the shares of Argentine companies listed on the Wall Street.

He Financial Stability Committee trusts in the robustness of the local system to face scenarios of international uncertainty, as was demonstrated throughout 2022 with the war in Ukraine.

In addition, the liquidity ratios at 30 and 91 days from Uruguayan banks have remained stable since September 2021, according to information from the Central Bank of Uruguay (BCU).

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However, the market rules are not written on stone, so it is worth asking the question: What would happen to bank deposits in Uruguay if all forecasts failed?

The country has a Bank Deposit Guarantee Fund that manages the Bank Savings Protection Corporation (Copab) and which is made up of premiums provided by banks and financial intermediation cooperatives.

Currently, that fund is made up of just over 52% of the 1,913.18 million dollars established as a ceiling ($1,007.5 million), reported El País.

Who does the Bank Deposit Guarantee Fund protect?

Copab’s tool covers non-financial sector deposits, whether they are legal entities or individuals, with the exception of those of the bps and the national government.

The protection is not per account, but per owner and has a guarantee limit of 250,000 Indexed Units (UI) for deposits in pesos (almost 36,000 dollars at the current exchange rate) and 10,000 dollars for those in foreign currency.

Thus, almost all of the owners of deposits in pesos (99%) are reached by the Guarantee Fund, while the figure is 63% for those who have assets in dollars.

Source: Ambito

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