Chile And The Us Banking Industry

9279 WordsAug 12, 201538 Pages
The present working paper is referred to the analysis of some “financial benefits” that banking institutions would be receiving as Too Big to Fail (TBTF) banks. The request is whether those institutions are constantly subsided from governments or it is merely a hypothetical idea. For those purposes, it is analyzed the Chilean banking industry to disclose the implicit subsidy in the South American country. In order to answer the posited questions, first it is cited some similarities between Chile and the US banking industry, and then how it evolved to this point after several financial crises. Secondly, it is examined potential implicit guaranties of Chile’s TBTF banks. In that sense, it is analyzed the concentration and interconnection in Chile. Then, it is analyzed those expected financial benefits that flow to the TBTF banks. Specifically, two of the likely financial benefits. Primarily, the over the counter (OTC) derivatives, and then repurchases agreements in the banking industry, especially in events of default, insolvency, and bankruptcy. Thirdly and lastly, it is stated some remedies that I can propose to solve these issues, including the Subsidy Reserve Act, as adapted for the Chilean banking industry, among others. As a result, policymakers, congressmen, local and international organizations, and governments would be able to use this work for the financial and banking reform. At the end, the purpose is bringing some balance between TBTF banks and small and
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