The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

Banking crisis: Does Chile point the way ahead?

The resolution of one Latin America banking crisis in the early 1980s could provide lessons for today’s policymakers.

Ever since the financial crisis began in mid-2007, commentators have sought parallels in the hope of finding a template for curing sick banks, especially in the US and UK. The obvious examples are the banking crises in the US in the 1930s, Sweden in the early 1990s and Japan later that decade.

In terms of size and complexity, these crises are probably the most comparable with the one today. There is, however, another example that policymakers should pore over. That is the Chilean banking crisis of the early 1980s, as economists Vitoria Saddi and JF Hornbeck, among others, have recently argued.

Although there are key differences between that crisis and today’s – not least in their origins – there are some valuable lessons that Chile’s recovery plan provides for policymakers.

The Chilean crisis was macroeconomic in origin. In the late 1970s the Andean nation liberalized its financial system, including banking regulation that culminated in a credit-led boom between 1980 and 1981. Bank lending almost doubled between 1979 and 1981 to 45% of GDP, according to Hornbeck. As the global economy entered recession in 1981-82, however, that boom turned into bust.

A deteriorating economic environment and a weakly regulated financial system led to an inevitable outcome – stressed borrowers and overextended banks.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree