Pesce Highlighted the Importance of Public Institutions for Ensuring a Sound Financial System

The President of the BCRA, Miguel Ángel Pesce, ratified the important role of public institutions to achieve a sound financial system. “Financial regulation and the deposit insurance system guarantee what the market cannot do: when there are critical situations of doubt among depositors in terms of liquidity, public institutions must act,” said Pesce at the 21st Annual Conference of the International Association of Deposit Insurers (IADI) held in Buenos Aires.

“This year's winners of the Nobel Prize in Economic Sciences—Ben Bernanke, Douglas Diamond and Philip Dybvig—have written about the nature of banking systems and the importance of regulatory and deposit insurance systems for the stability of financial systems. Financial systems have a special quality: a set of actors, with different behaviors, acting harmoniously in a stable way. This stability is jeopardized when questioned by depositors, and it is at that moment that public institutions play an important role,” explained Pesce.

The President of the BCRA said that the 2008 crisis has taught many lessons regarding the importance of regulations, and added: “We thought a self-regulated mechanism was possible through capital requirements, external audits and credit rating agencies, but we still underwent the crisis in 2008. The new liquidity requirements established by the regulatory framework called Basel III have led to a more sound and stable financial system.”

Pesce also referred to the new challenges that the financial system has to face, and pointed out: “The first challenge is the role of global investment funds, which manage a large volume of financial assets and liquidity that may threaten the stability of economies and lead to financial contagion. This topic has already been discussed at the G20 and the Financial Stability Board (FSB), and work is underway to prevent these funds from distorting, especially, small capital markets.”

Then, Pesce added: “Another challenge is the irreversible and gradual disappearance of physical money. Each country has faced this problem in a different way. In Argentina we have an advantage: in 2018, 80% of the adult population already had a bank account since the Argentine social assistance system is based on the distribution of money through bank accounts, thus promoting transparency. Now, after the crisis brought about by the pandemic, 98.5% of adults—almost the whole adult population—have a bank account or a virtual wallet. The BCRA has regulated non-bank wallets. These institutions cannot carry out financial intermediation and must place 100% of the deposits received at regulated institutions, thus making sure such transactional money is not used for other purposes.”

Finally, the President of the BCRA stated that the potential risks that blockchain-based non-public currencies may pose must be addressed in the near future as they are not backed by any state institution or underlying assets.


Jueves 27 de octubre de 2022

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