Panama - Banking and securities

Panama was considered the most important international banking center in Latin America in the late 1980s. In 1970, 28 banks operated in Panama's international banking center; by 1987 there were 120, with assets of nearly $39 billion. Liberalized banking regulations and use of the dollar made Panama one of Latin America's major offshore banking centers.

Since 1983, the year of the onset of Latin America's financial crisis, the Panamanian banking sector has contracted, both in number of banks and total assets. In 2001 there were about 85 banks in Panama, holding $38 billion in total assets. Fifty of the banks in Panama have general licenses, 25 banks have offshore licenses, eight foreign banks have representative offices, and two banks are government owned. The National Bank of Panama (Banco Nacional de Panamá—BNP), founded in 1904, is the principal official (but not central) bank and also transacts general banking business. Banking activities are supervised by the National Banking Commission (Comisión Bancaria Nacional—CBN).

The balboa is fully convertible with the dollar at a fixed rate of 1:1. The government cannot, therefore, implement a monetary policy. Most monetary developments are exogenously determined by the balance of payments.

Panama's banking center has allegedly been the main money-laundering point for proceeds from international drug-trafficking. In March 1994, it was decreed that persons entering Panama had to declare money or financial instruments in excess of $10,000. For deposits and withdrawals in excess of this amount from local banking institutions, a form had to be completed, providing details about the person carrying out the transaction. In 1998, a banking law was enacted in order to modernize the banking system and increase government supervision. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $1.3 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $9.4 billion.

Panama's international stock exchange, the Bolsa de Valores de Panama, began operations in June 1990. In 2003, there were a total of 94 listed companies. Companies rarely issue stock on the stock market, and investment is small because of a 10% withholding tax. Panama's Central de Custodia de Valores (Panaclear) began operations in November 1996. A rating agency began operations in early 1997.

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