Chile - Banking and securities

During the Allende period, almost all private banks were taken over by the government, mainly through the purchase of stock. The military government reversed its predecessor's policy, and now the financial market is essentially private. In 1999, Chile had, in addition to the Central Bank, 29 banks and 3 finance societies (which have less capital than banks and cannot perform foreign trade operations). There was one state-owned bank; the Banco del Estado is the country's second largest bank, with 13% of loans and 14% of deposits in 1998. Six US banks, twelve Chilean banks, and eleven foreign banks operated in Chile. The Central Bank and the Superintendent of Banks and Financial Institutions (that reports to the Finance Minister) both regulate the financial industry.

Following government intervention in a number of financial institutions in 1983, the Central Bank introduced three major measures: the issue of $1.5 billion in emergency loans; a provision by which banks could sell their risky portfolios to the Central Bank for 10 years with an obligation to use their profits to buy them back; and the "popular capitalism" program, announced in April 1985, which allowed, among other things, a new share issue for banks in which there had been intervention.

A working group was formed in December 1996 to iron out the remaining technical obstacles to a new banking law so that it might be approved by both houses of Congress before February 1997. Several deadlines have already been missed regarding bank liberalization, which has been under discussion since 1991. The Central Bank kept its main monetary policy instruments unchanged in 1995, but it lifted its target range for interbank rates from 7% to 7.5%. In 1997, a new banking law relaxed some of the restrictions by allowing banks to provide factoring and leasing services.

Securities trading has been traditionally inhibited by the Chilean investors' preference for real estate investment. There is free sale of securities, the largest groups of which are in mining, banking, textile, agricultural, metallurgical, and insurance stocks. All corporations with more than 100 shareholders must register with a stock exchange. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $6.5 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $30.9 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 6.81%. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 6.5%.

In 2000, some 315 companies were listed on the Bolsa de Comercio de Santiago, (BCS), which was founded on 27 November 1893. It is a private company comprised of 48 shares held by single shareholders. Chile's first stock exchange dates from 1892 and was established in the Port of Valparaiso. It closed in 1982. Stock operations on the Santiago exchange are regulated by the Insurance and Value Superintendency. The Santiago exchange lost 13% of its value between 1999 and 2001.

In November 1996 the foreign ministry and the Central Bank, together with the superintendencies for banks (SBIF) and for securities and insurance (SVV) completed a draft bill for the launch of an offshore stock market in Santiago. It would operate in foreign currency, not convertible into pesos, and would give access to the local capital and credit markets to all Latin American and other foreign borrowers. The offshore stock market began operations in 2000.