“Recent developments in the Chilean Financial System and Challenges ahead” Rosanna Costa, Governor of Central Bank of Chile Chile Day – December 12 and 13, 2022 – London, United Kingdom Good morning distinguishes authorities and dear friends. I am going to talk about the recent developments in the financial system in Chile and the view of the Central Bank of the challenges ahead. Introduction In December of last year, the former Governor of the Central Bank of Chile (and nowadays the Minister of Finance) presented in this very same forum in London about the developments and prospects of the Chilean economy. By then, our country was going through a process of strong recovery from major shocks that affected our economy: first the social unrest of 2019 and then the pandemic of Covid-19. Therefore, the discussion last year focused on the aftermath of the pandemic and the different measures that were adopted by the Central Bank and the government to mitigate its effects on the real economy. Since July 2021, the Central Bank has been hiking the monetary policy interest rate, due precisely to strong pickup of household consumption driven by governmental aids and pension funds withdrawals. A year ago, the Central Bank also raised a note of caution for 2022 and 2023 due to the weakening of the capital markets, identifying several factors including the reduction of long-term savings due to pension withdrawals and its impacts on access to long-term financing for companies and individuals, risk of fiscal deterioration and persistent uncertainty, among others.
As part of this process, in 2021 and in accordance with the definitions of the General Banking Law, a policy framework was published by the Central Bank to implement the Countercyclical Capital Requirement. The CCyB is the main macroprudential policy tool under BCCh authority, and BCCh-CMF coordination. As applied, the objective of this bank capital requirement is to increase banks’ resilience in the face of severe stress scenarios, resulting from systemic risks, thus contributing to reduce the impact of these events on financial stability, avoiding restricting essential banking services, such as credit supply, hence protecting the economy. The BCCh has so far not activated this requirement. As indicated in our latest Financial Stability Report, the banking system shows resilience, with contained risks and high levels of provisions, liquidity and capital that constitute sufficient buffers to withstand severe stress scenarios. Moving forward, it is necessary to advance in the coordination processes between the Central Bank, the CMF, and the Financial Stability Council to consolidate over time the implementation of these new tools within a framework of macroprudential regulation that follows international guidelines. 14  As we continue to observe the experience of jurisdictions that started the implementation of Basel standards before we did, we believe that the challenging last 3 years will provide extremely valuable information regarding the effectiveness of capital and liquidity measures implemented by Basel III and international standards.