AND The resolution of the Committee for the Regulation of Monetary Policy is causing controversy because the practice from a few years ago of using bank reserves to finance the state through investments in government bonds would be revived. is that Last June 30, the Committee issued resolution JPRM-2023-013-M which establishes that private banks and cooperatives can hold up to 20% of their required reserves in government bonds. It is a voluntary investment.

The decision changing the percentage of mandatory reserves and liquidity reserves of public, private and public and joint financial sector entities, signed by the President of the Management Board Tatiana Maribel Rodríguez Cerón, states that “20% could be compensated by instruments issued by the Ministry of Economy and Finance (bonds)… These values ​​must be kept in the central bank of Ecuador.”

The decision removes Resolution JPRM-2023-002-M of January 20, 2022, which in turn suppressed the possibility for banks to buy bonds state through mandatory reserves and determined that this item should be 100% liquid. Before that decision from more than a year ago, the rule determined that bonds could be purchased up to 75% of the reserve.

In accordance with Alberto Acosta Burneo, editor of Análisis Semanal, in the previous resolution the entire amount had to be deposited in cash at the Central Bank. Now it is again allowed to pay the reserve interest with money in government bonds. He explains that this decision “denatures the goal of the reserve”. Consider the risk that this provision exists because the lace must be absolutely fluid. “The reserve is not for making high returns, but for dealing with the withdrawal of deposits at any time,” he says.

Who wins with this bank reserve change?

For Acosta Burne, investing in these papers can be attractive to banks, as they generate returns in between 7% and 8%, while having resources only in lace does not create without performance. And he believes that the Government requests that part of these reserve funds go to finance public spending.

But remember that Law on Defense against dollarization in 2021 prohibited the Central Bank from financing the Government. But, according to him, the Monetary Board found a way to cancel that ban. And he claims that at this moment prudential banking recognized an amount greater than that prescribed by law.

Really, The Association of Private Banks (Assobanca) reported that the minimum reserve required by the central bank of Ecuador reaches $2,090 million from June 2023. However, there is a surplus of $1409 million. In other words, private banks show a reserve of 3,499 million dollars, which is the equivalent of 8.3%, or 3.3 percentage points more than the minimum required in accordance with the regulations (5%).

Ashobanca: It’s nothing new

Regarding the resolution of the Committee for Monetary Policy and Regulation, Asobanco President Marco Rodríguez comments that it is not something new. “From 2011 to January 2022, regulations allowed banks’ reserves to be formed with government bonds up to 75% (rule of the previous Committee for Monetary and Financial Policy and Regulation No. 273-2016-F of August 22, 2016)”. He then explains that the decision from June 2023 reduced the amount of the investment to 20 percent.

Rodríguez argues that the reserve requirement is a type of savings “cushion” that allows financial institutions to cover themselves shocks in the economy and immediately respond to possible requests for money from their clients. However, for passport this option “It is voluntary, that is, it is not mandatory for banks. Therefore, it does not limit the possibility for banks to have 100% liquid assets in reserve”.

So some banks started investing in that topic. In accordance with Santiago Bayas, manager of Banco Pichincha, The government gave the banks the possibility to constitute a part of the reserve with titles. He explains that Banco Pichicha has just bought a small number of bonds, taking into account that the state is obliged to prevent the occurrence of El Niño.

What percentage of the deposit should go to the reserve?

Deposit insurance is another guarantee that clients have

According to Asobanc, it is important to mention that, in addition to the bank reserve, there is another guarantee mechanism for clients, namely deposit insurance. Deposit insurance covers up to $32,000 of any type of deposit that customers hold in private banks. Currently, deposit insurance reaches USD 2.621 million as of June 2023, a value that covers 99% of clients who have accounts in private banks in the country.

Public banks can invest 75% of the required reserve in bonds

This is indicated by the resolutions from January 2022 and June 2023 public banks can invest up to 75% of its reserves in government bonds. Regarding this issue, analyst Alberto Acosta Burneo says that, in his opinion, the most sensitive issue is private banking. As for public banks, at the end of the day, the state has to answer for these banks and they don’t attract that much public, although they undoubtedly feel that their resources are at risk.