Financial development has been important not only for firms but also for the country as a whole. A deeper and far-reaching financial system contributes to building financial and economic inclusion, and financial stability against external shocks. In this respect, the Chilean financial system shows better performance than other Latin American and Emerging economies, in dimensions like market capitalization, number of branches per inhabitant, use of derivatives, and participation in domestic credit to the private sector, to name a few. Nonetheless, increased development and complexity of financial markets also means that risks may be higher, and that a stronger and more sophisticated regulatory framework is required. Page 10 of 20  Central Bank of Chile September 2019  The Chilean financial crisis of the early eighties led not only to a radical bank regulation revision, but also to learning valuable lessons for the future. A deeper and properly regulated financial system contributes to financial stability, inclusion and increased welfare. Even though significant progress has been made in this regard, there are still challenges ahead that must be faced to further strengthen our financial system. Let me now address some of these regulatory challenges the CBC has been working on. Page 11 of 20  Central Bank of Chile September 2019  In order to have a deeper FX market and enhance resilience of the financial sector a number of measures are being taken by the Central Bank of Chile (CBC).
Among firms that report in pesos, the debt is mostly concentrated in those with a limited individual currency mismatch: firms with a mismatch Page 8 of 20  Central Bank of Chile September 2019  of over 10% of their assets hold just 3% of external debt, and represent about 10% of the total number of companies that use the Chilean peso as accounting currency. Local institutional investors’ participation in the local sovereign debt market, especially in the longer segments of the yield curve, is much higher in Chile than in most emerging economies, at 80 to 90%. Thus, the buy-and-hold strategy of these investors reduces the volatility of both local sovereign rates and domestic funding costs. By now, the Chilean financial sector is one of the most developed in the emerging world. It has transited from being largely dominated by traditional banking to being composed by several other market participants, including Pension Funds, General Fund Administrators and Insurance Companies; among others. Assets under management of these non-bank investors went from less than 1% of GDP in 1984, to Page 9 of 20  Central Bank of Chile September 2019  65% in 2000, and to almost 100% of GDP in 2018. This development has translated into improved access to alternative sources of funding by Chilean firms. Currently, around 85% of total corporate bonds are held by institutional investors, thus reliance on banking credit of these corporations has gone from 91% of financial debt in 1986 to around 25% in recent years.