Perhaps the most important program was the purchase of deteriorated portfolios by the Central Bank under a variety of schemes, including repurchase agreements, and in exchange of debt instruments, liquid resources, and a new liability called “Subordinated Obligation”. The impact of these programs on the assets side of the Central Bank balance sheet was huge, and so were the costs of the complete rescue plan. Altogether, it is estimated that only the direct fiscal cost of the Chilean Financial Crisis of 1982 reached 41% of GDP. The aftermath of the crisis The lessons learned from this crisis highlighted the fact that banking regulation and supervision needed to be substantially upgraded. In 1986, the General Banking Law introduced limitations on currency mismatch, constraints on related party lending, and restrictions for banks to receive  Page 2 of 5  Central Bank of Chile March 2019  goods instead of liquid resources; all of them, elements which were common practice before the 1982 crisis. Paradoxically, what could be considered harsher regulation did not hamper financial deepening. Instead, it fostered solvency and credibility of the banking system and allowed its healthy development in the ensuing decades. Regulation and Financial Development Credit has a valuable role in the economy. Financial intermediaries channel resources from agents that save, to agents that need to borrow to smooth consumption or finance profitable projects.
Still, there are a few challenges ahead that we need to address to have an even more robust financial system. In particular, two tasks seem more urgent than others. Namely, Resolution of Financial Institutions and Deposit Insurance. While the new Banking Law includes some provisions in this respect, by introducing stronger early-intervention measures, these need to be further  1  Based on Agosín et al. (1999) and Espinosa and Fernandez (2015). Page 4 of 5  Central Bank of Chile March 2019  developed to provide a comprehensive framework to deal with banks in trouble or on the brink of insolvency. Once the preparatory phase of the General Banking Law, including a unified supervisor, is fully completed, we hope that the Central Bank and the Government can advance in drafting a legal proposal on these issues. Certainly, these areas will be important points in the IMF’s Financial Sector Assessment Program (FSAP) update of 2020, and it is important that we get there with the job well advanced. Acknowledgements Finally, allow me to thank the presenters for sharing their interesting research insights here with us in Santiago. I also thank the organizers from the Central Bank of Chile and the IADB in putting together this rich agenda from which we will certainly distill conclusions to guide our work forward.