Venezuela - Banking and securities

The Central Bank of Venezuela (Banco Central de Venezuela-BCV, founded in 1939) is the fiscal agent of the government, responsible for fixing the rediscount rates, holding the country's gold and foreign exchange reserves, making collections and payments on behalf of the Treasury, and buying foreign exchange acquired from the oil companies and from exporters and reselling it to the government or to commercial banks. It also cooperates with government departments and other institutions in the work of special commissions, and is the sole note-issuing agency.

The state banking system consists of the Central Bank, the Industrial Bank of Venezuela, the Workers' Bank, seven regional and development banks controlled by the Venezuelan Development Corp., and the Agricultural Bank. In the private sector there are commercial banks, investment banks, mortgage banks, and savings and loan associations. The country's first mortgage bank, the Mortgage Bank of Urban Credit, initiated operations in Caracas in 1958.

The government has traditionally played a key role in the financial system, not so much because of budget financing needs (which until recently were modest by Latin American standards) but because of its involvement in medium- and long-term credit institutions which were set up to meet deficiencies in the system of financial intermediation, and also to channel the high oil revenues into productive sectors. The commercial banking system is, however, almost entirely privately owned. In 2002 there were 38 commercial banks, 16 mortgage banks providing long-term loans for construction, land acquisition, or real estate development, and 29 financieras.

Until 1972, Caracas was the only city in Latin America with two stock exchanges: the Commercial Exchange of Caracas (founded in 1947, although informal trading in stocks has taken place in Caracas since 1805), controlled by the Caracas Chamber of Commerce, and the Commercial Exchange of Miranda State (founded in July 1958). The two exchanges were merged under the terms of the 1972 Capital Markets Law, which regulates the trading of securities and the activities of brokerage houses. There is also an exchange in Valencia. The National Securities Commission, established in 1973, oversees public securities transactions. Not all the securities of Venezuelan corporations are listed on the exchanges, and new securities are constantly added.

The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $12.8 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $22.9 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 13.33%. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 37%.

Venezuela's stock market was among the best performing in the world in 1996 because of restored confidence in economic policy and currency stability, but the Latin American financial crisis of the mid-90s put a damper on its success. The index of the Caracas stock exchange closed the year at 6,690.06, a 135% increase in dollar terms from the low base at the start of the year. In 2001, the index closed at 6,570.3, a drop of 3.7% from 2000, although in 1998 it had dropped well below 5,000. The total market capitalization, at $6.2 billion in 2001, had decreased by 24% from 2000, due to continued problems in the financial sector.