URUGUAY: GOVT LAUNCHES INDEPENDENT SAVINGS PROTECTION

UNCLAS MONTEVIDEO 000519

SIPDIS

STATE PASS TREASURY FOR BLINDQUIST

E.O. 12958: N/A
TAGS: ECON EFIN EAID UY
SUBJECT: URUGUAY: GOVT LAUNCHES INDEPENDENT SAVINGS PROTECTION
AGENCY

REFS: (A) (05) Montevideo 332, (B) (05) Montevideo 295, (C) (05)
Montevideo 272, (C) (05) Montevideo 267


1. The GOU launched the Corporation of Bank Savings Protection
(COPAB) on September 1. The COPAB succeeds the Superintendence of
Bank Savings Protection, which was created as a Central Bank
division soon after Uruguay's 2002 banking crisis. Like its
predecessor, the COPAB will be in charge of protecting savings in
financial institutions and administering Uruguay's deposit
protection fund (currently holding approximately USD 121 million).
Unlike its predecessor, it will be independent from the Central
Bank. COPAB has been tasked with designing bank resolution
procedures, making deposit payoffs whenever financial institutions
fail, and taking over failing institutions. COPAB's Board is
composed of three members that will serve terms of eight, five and
two years in office in order to keep them independent from the
political cycle.


2. Speaking at COPAB's inauguration, Minister of Economy Alvaro
Garcia and Central Bank President Mario Bergara touted its creation
as an important step towards consolidating the institutional
framework of Uruguay's financial system. Both officials expected
COPAB to protect less sophisticated deposit holders and help
preserve the chain of payments, which should result in a safer and
more stable banking system. Bergara explained that under the new
framework, the Central Bank remains the lender of last resort, the
Central Bank's Superintendence of Financial Services is in charge of
regulating and supervising the financial system, and the COPAB is in
charge of protecting savings.


3. Uruguay's deposit insurance covers up to USD 5,000 per account
for dollar-denominated deposits, and up to 250,000 Readjustable
Units per account (about USD 25,000) for peso-denominated deposits.
Since its creation in December 2002, the insurance fund was used
only once, in the case of a financial cooperative that was finally
purchased by Venezuelan bank Bandes (Refs).


4. The USG is helping through Treasury's Office of Technical
Assistance (OTA),by providing technical assistance to several
divisions of the Central Bank. Part of OTA's program is
specifically targeted at building COPAB's capacities in the areas of
risk analysis and bank resolution procedures. The launching of
COPAB was part of the new central bank charter passed in October
2008, and was not related to any adverse development in the local
financial system. To the contrary, Garcia and Bergara highlighted
the soundness of local banks, noting that they have not been hit by
the global financial crisis.


MATTHEWMAN