Good morning. I would like to thank the authorities of FELABAN for this invitation. Above all, I appreciate the opportunity to welcome friends from the industry across our continent. We welcome you with the conviction that you will perceive a different Argentina from that of recent years, an Argentina that can look at the world with confidence and be looked at by the world with confidence. More importantly, an Argentina that looks with great, immense confidence towards its own future. Because Argentina is building it every day.
I would like to take these minutes to speak to you face to face, from one central bank to those regulated by central banks. A conversation from a bank to banks. There is no need for me to tell you what you already know by heart: how important banks are for the development of each of our countries. Unfortunately, in the popular imagination, a banker is still seen as the Monopoly man: the one who can bankrupt you. Or, as Mark Twain used to say, the fellow (or woman, as we would add today) who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.
We work every day so that every bank and every banker can feel like what is, no doubt, their vocation: the provider of a double service to the community, a genuine win-win. That is, one that takes care of the savings of those who have capital but do not need it, and make them profitable; and finds those who lack capital but have good opportunities to use it.
What can a central bank contribute to this role and vocation that we all want for banks and bankers? I believe there are essentially two contributions: the first one is to help maintain a stable macroeconomy; the second is to ensure, through its regulation, a safe and competitive financial system. Let me to refer to each of these dimensions for a few minutes from an Argentine perspective.
First, let me refer to the macroeconomic issue. Unfortunately, we, Argentines, had to learn the hard way, firsthand, how a poor macroeconomy can limit and even destroy the development of the financial system.
For that reason, some lessons are deeply ingrained in our society. We learned that in a hyperinflationary macroeconomy, banks almost disappear; that in a macroeconomy with contracts tied to a foreign currency but payment capacity associated with the local currency, contracts are conditional and, ultimately, unlikely to be fulfilled; we also learned that in an economy with high and persistent inflation, and nominal rates set well below that inflation through monetary or regulatory instruments, the financial system withers, and large or small capital moves to other latitudes and other currencies.
And in recent years, the developed world has also offered us lessons learned the hard way: let's pay attention to asset bubbles, even if it is so difficult to detect them in time; also be careful with approaching deflation and negative nominal interest rates, which also lead to financial disintermediation.
Fortunately for our country, we also have lessons in macroeconomic health; and they are closer to us, both geographically and in terms of relevance. Fortunately, we have Latin America. When dealing with macroeconomic reconstruction over these months, the BCRA has been inspired by Latin American examples in almost all aspects. We chose the path of fighting inflation with a downward target path, even starting from a double-digit inflation rate, like Chile, Colombia, or Brazil. We chose a floating exchange rate regime, like almost the whole continent. We chose to promote credit in domestic currency, with the possibility of having long-term contracts protected from inflation, again like Colombia, Uruguay, or Chile. We chose a benchmark interest rate policy, as in a large part of Latin America, with a view to fighting inflation and giving a clear signal to depositors: they will have a positive real return in the financial system, and even returns that are more stable than those in another currency.
All of this is the essence of what we could call the "Latin American monetary strategy" of the BCRA. Although many features are shared in other regions, I call it Latin American because only this continent has had to go through such a challenging path of de-dollarization, disinflation, and financial reintermediation. We believe that this healthy Latin Americanization of the Argentine macroeconomy is already beginning to bear its first fruit, both in the economic context in general and in the financial system in particular.
Now, I will add a few brief comments about the other contribution of a central bank: regulation. Regulating the banking system is very challenging. Particularly, if you want to do it well. Of course, it is easy to regulate it poorly, that is, ideologically. It is easy to regulate it poorly with the ideology of those who believe in the unrestricted equality between a "deregulated market" and an "efficient market." And it is easy to regulate it poorly with the ideology according to which, if a market is important, it must be regulated down to the smallest detail. Regulating the banking system well means, I believe, taking into account what is considered as "market failures” by the economic science, and seeking to correct them so that the market resembles, as closely as possible, a "perfectly competitive market,” which is the economists' paradise.
Unfortunately for the regulator (although it makes their job a bit more interesting), the banking market is one that can suffer from almost all market failures, i.e., the features of the goods or services that make the industry unable to achieve maximum efficiency if left to its own devices and without regulation.
For example, the free market is not completely efficient if there are externalities (that is, if what happens in a transaction can impact third parties) and, in the banking system, there can be such externalities. There may be good and bad externalities. An example of good externalities is that as bank payments develop, citizen security improves, transaction costs are reduced, fewer trees are cut down to produce banknotes, people and activities excluded from the formal economy are included, and even the efficiency of the banking system itself improves. Therefore, it makes sense for the regulator to particularly promote bank payments. But there can also be negative externalities. For example, a solvency problem in one bank can affect others and become systemic. That is why regulatory intervention with solvency and liquidity criteria is efficient; here we have a good Argentine example, a true state policy whose latest milestone was the recent approval of our banking regulation as consistent with Basel III criteria.
And just as there are externalities, the banking market can exhibit all or almost all "market failures" described in textbooks: there are problems of imperfect information or asymmetric information between depositors and banks, and between banks and potential borrowers; in some aspects, there are economies of scale (for example, in payment systems) that can lead to a monopoly that the regulator must fight; there are long-term and multiproduct relationships; there can be “principal-agent” problems between shareholders and managers. The list is long and I do not intend to bore you at this time of the morning.
The most general observation would be: regulators and regulated institutions must be aware that this particular market is subject to these failures, and we must make our decisions by sharing the same criterion, seeking a financial system as close as possible to one of perfect competition: transparent; with prices that, driven by competitive forces rather than regulation, end up reflecting costs; rewarding those who innovate over those who engage in rent-seeking behavior; adopting technologies that help fight these market failures and, in turn, invite new players to healthy competition with traditional banks.
At the BCRA, just as at the banks and regulators of the continent, we work every day to achieve a more stable macroeconomy and to build that competitive and transparent financial system. The ultimate goal is, of course, a more prosperous and developed society; and, above all, a society in which all its members are included in the financial industry services. As a monetary and regulatory authority, we can build that more stable context and provide the most favorable rules of the game. But you, the banks, are the true agents of many of these changes. The whole country and the whole continent need and celebrate your involvement to achieve a more developed and fairer society.
Thank you.
