The Superintendence of Banks issued a resolution today saying that three of the banks intervened will be reopened on Dec. 21st. I still don’t see how this will work, since I expect people will simply take their money out as soon as they can and the funds will flow to better banks or to foreign currency.
It may be that the Government is doing this knowing quite well that this will happen, but the strategy will be costly. In some sense all the Government is really doing is moving loans and deposits from these banks to Banfoandes and changing the name of the bank, something that it could have done on day one and created much less panic than it has.
First of all, the Government will have to replace the capital in each of the three banks which reportedly was lost with the creative operations done by the owners.
But more importantly, let’s look at the deposits in each of the three banks, looking at the total in each bank, as well as the size of “official” deposits (As of October 31st., we don’t know how much fled the week the first two were open):
——————————-Deposits (Bs) Off. Deposits (Bs)
Bolivar 4,038 mill. 858 million
Confederado 3,001 mill. 1,702 mill.
Central 4,003 mill. 835 mill.
As you can see, in Bolívar and Central official deposits were roughly 21% of all deposits. We don’t know how much of that left Bolívar in the week that it was intervened with open doors, but I assume quite a bit. Thus, the only way to insure these deposits will not leave is for the Government to add to the official deposits. The case of Central is likely to be worse as investors did not have a chance to take their money out, as it was shut down when intervened.
You can also see how ridiculous Banco Confederado was, with 57.1% of its deposits in official ones, something that makes no sense in any way you look at it.
It is clear why the Government decided to liquidate Banorte, the bank had 65.9% in official deposits, a number that should have raised the eyebrows of the Superintendence and shows there was help from the regulators in this whole crisis.
And then we come to Banco Canarias. The Government has said little about the losses in any bank, but Canarias’ profile in deposits was not too different than these banks, with 43.3% of its deposits in the form of official Government deposits. Clearly, the losses had to be huge to justify the different strategy of liquidating the bank. The question is whether people will ever be told what exactly happened there and what is the cost.
Thus, in the end the Government is doing what it should have done from day one, but making Banfoandes stronger, which is surprising, given the charges that this bank kept part of its deposits in many of the intervend banks. But the worst part is that people are likely to move their funds to the private commercial banks that are perceived to have no problems. This could easily have been avoided.
It also makes little sense for the Government to now have so many banks. Banfoandes will now surpass Banco de Venezuela (assuming all deposits stay, which will not happen) with 19% of all deposits, Venezuela will have a similar amount in fourth place. Industrial will be a distant 12th. with 2%.
This will all have an unknown financial cost, as the Government will have to replace capital and cover losses in thse banks. But more importantly, Government banks have been unable to keep up with even the Government’s requirements for loan quotas, so that lending will be hurt, which will be bad for economic growth at a time when things are not well.