Central Bank of Chile September 2019  Integration or Fragmentation? International Capital Flows in the Post-crisis World How the Revised OECD Codes Can Improve Transparency, Accountability, Credibility, and Trust Session : “Next Vulnerabilities: Capital Flows and the Migration of Risks to New Corners of the Financial System” September 11, 2019 – OECD Conference Centre, Paris, France “Capital Flows and the Migration of Risks: The Recent Chilean Experience” Remarks by Mario Marcel, Governor of the Central Bank of Chile 1. Issues for discussion a. Which new sources of vulnerabilities are building up a decade after the 2008 crisis? - Risks associated with the growing importance of non-bank lenders. In some EMEs, this may result in credit lending going informal due to a relatively higher cost in credit provision due to regulation. - Risks that can emerge from a less developed financial infrastructures outside the regulatory perimeter. - Risks attributed to disruptive FinTech activities, such as the development of crypto-assets markets, as well as cybersecurity issues. - Risks and challenges associated with the changing nature of banks’ business model. In particular, those coming from the internationalization of banks’ activities. b. How to better consider a cost-benefit framework for financial regulation, such as currency-based measures (CBM)? - While the banking regulation and supervision arising from the 80s-banking crisis was restrictive in several ways, it was supported by sound monetary and fiscal policies.
International Capital Flows in the Post-crisis World, September 2019 CENTRAL BANK OF CHILE  The Chilean banking industry  Main changes in the Chilean banking industry Change  Concept  Characteristics  Advantages  Challenges  New GBL  New solvency requirements (B3)  Reduces gaps with international standards  Bank’s capacity to comply with new standards  Regulatory environment  Revision of Compendium of Accounting Regulations  Changes if financial statement reporting requirements  Greater importance to the financial statement; reduces asymmetries in financial statement reporting  Maintaining the quality and timelines of financial information; measures for mitigating operational risk  Emerging risks  Cybersecurity events  Vulnerability of digital platforms; temporaray suspensión of services  Mitigation strategies at the industry level  Greater investment cybersecurity  Integration of retail financing  Parent banks absorb nonbank card issuers  Wider coverage of consolidated debtor information  Incorporation of new debtors in credit risk models  Oversear bank subsidies  Acquisition of Banks overseas  Diversification of business models  Different regulatory framework; large overseas investment by local parent banks  Expansion into new business areas  Source: Financial Stability Report, first half 2019, Central Bank of Chile. Let me add one more thing regarding the use of CBM by several EMEs, which have targeted the banking system, rather than the general resident-non-resident relationship, as is usually done by capital controls. The Figure below, for example, based on De Crescenzio et al.