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BANKING

Latin American derivatives: Banks won’t be fooled again

Mexico and Brazil come to terms with meaning of exotic
Central banks save the day
Suitability debate

Banks in Mexico are looking closely at their internal controls in the wake of the derivatives crisis. A US fund manager directly involved says: "I couldn’t believe that the banks purely took the corporates’ word on how much exposure each had to derivatives."

A senior Latin America banker in New York says: "The issue was corporates doing a lot more derivatives than the banks knew about. Given the nature of these derivative contracts, it wasn’t necessary for the corporates or the banks to fully disclose their positions. Supposedly the companies were doing what they needed – or so the banks were led to believe. Now the banks realize that corporates weren’t totally truthful about the exposure they had."

But now, with a combination of increased corporate disclosure and new measures within the banks, it is unlikely that the banks will be duped again. According to some sources, in the early months of 2008 Comerci claimed it had only three or four counterparty banks; in October it emerged that 13 banks were working with the supermarket chain.

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