Banking Crises

Banking crises occur when one or more banks in the financial system of a country, reaching a level of financial stress, where the regulator and supervisor (in the case of Venezuela, the SUDEBAN) chooses to intervene, and in some cases close. They are divided into two groups, individual crisis and systemic crisis. Individual crises occur when the banks or financial stress present no danger for the rest of the financial system, often because they are banks that do not have large bank in the ranking. In this case we have the example of Capital Bank, which was intervened and closed in December 2000 and whose intervention and closure did not affect the banking system. Systemic crises, occur when the banks involved represent a large percentage in number and size within the banking system. The classic example is the banking crisis in Venezuela (1993-1994), described in the previous bulletin, which were operated 18 banks, many of them closed.

Talk about reasons why these occur crisis, can lead to various responses, I remember that when studying the Masters in Finance, I had to investigate the financial crises of Mexico, Chile, Peru, Argentina, Venezuela and the Asian crisis, and I realized that they had common and uncommon elements. So I think that the best way is to mention and explain the causes that usually generate banking crises, which could be present in Venezuela in 1993-1994, or that may affect our country today. The causes can be divided into three groups: 1) macroeconomic causes. Are those circumstances of which worsen macroeconomic environment (in times of recession) the financial position of banks. These include: economic liberalization Economic Instability After Occurrence of a Boom in the years before the crisis Fall of money demand constant presence of fiscal deficits 2) microeconomic causes.

Are those particular causes each bank which affect its financial situation. In this group we have for example: disproportionate increase High credit portfolio level of overdue credit portfolio related appropriations High level 3) Other causes. Are generally related to people’s reaction to specific circumstances and also to the actions of the supervisory and regulatory body.