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New functions of the FSD

Under Law No. 26702, a depositor, whose deposits are insured by the FSD, is paid during the process of the dissolution and liquidation of a member. Thus, the Fund acts only in the final stage of the process in which a member leaves the financial system.

In this regard, and from experience with previous liquidations, it can be said that:

  • There is no mechanism to rehabilitate companies whose liquidation jeopardizes the rest of the financial system .
  • There are no mechanisms that allow for preserving the value of the assets of financial institutions that must be liquidated. Any such mechanism would jeopardize the position of creditors, especially depositors who recuperate their money from the sale of said assets.

The absence of such mechanisms puts the savings of the public at risk because the closure of a bank can involve the entire financial system or because a liquidation process that is slow and inefficient could result in the liquidation of the value of an institution’s assets.

To avoid such problems, the functioning of the FSD has become more flexible and the process by which a company leaves the financial system has been redefined.

The flexibility of the functioning of the FSD has resulted in transforming it into a private legal entity of a special nature that can act during the entire process of a company leaving the financial system, a change that allows it to use resources more efficiently.

Redefining the process of a company leaving the financial system has eliminated the problem of slow and inefficient liquidation that did not protect the value of the assets of the financial institution in liquidation.

The new process for a company leaving the financial system includes :

a) Determination of the worth and capital contributions in the Instability of the Financial Procedure. In this case, the SBS is authorized to ask the shareholders for the capital contributions necessary to reverse the problems that come up of worth or of liquidity successfully.

b)The FSD is authorized to rehabilitate the financial institution while the Surveillance Procedure is in force and punish shareholders and those responsible for the management. The FSD acts in some cases in which the liquidation of an entity can jeopardize others (Systemic Risk) and when neither shareholders nor third parties have made any capital contributions.

c) In the Intervention Procedure, “good” assets are transferred to the financial system (through one or more banks), together with a capital contribution from the Fund, all of which are to be used to pay those depositors covered, a procedure that avoids a slow liquidation process. The “bad” assets or “residuals” enter the liquidation process.

d)In the process of dissolution and liquidation, if there is a public bidding to select the liquidating company, and if by the second call for bids no choice is made, a judicial liquidation is initiated.

Benefits :

a)Acting promptly on the Surveillance Procedure to rehabilitate a compay avoids any possible systemic risk and the involvement of other financial institutions;

b) Allowing the SBS to transfer the “good” assets under the Intervention Procedure avoids any loss in value of said assets during the liquidation process. .

c) In general terms:

  • The savings of depositors receive greater protection.
  • The shareholders and those responsible for the bad management of the financial institution are punished.
  • The process for a company leaving the financial system is more efficient.
  • The FSD is more active.