“It is urgent to deregulate the traditional financial system,” according to a report presented by the **Latin American Economic Research Foundation (FIEL)**. The proposal comes in response to the **advancement of fintech** and the **lack of regulations governing these companies**.
For this reason, **Daniel Artana, chief economist at FIEL**, stated that “competition between **banks** and **fintech** must occur on a level playing field.” He proposes a **”prudential regulation” for technology companies in the sector** and, on the other hand, a move towards a more “free” system for banks.
In the presentation, economists highlighted the **negative impact** that regulations have on **financial inclusion** and advocated for a **deep liberalization of the activity**. “We must give them the freedom to provide the services they want free of charge,” said Artana.
Deregulation of the financial system: what regulations are proposed to be eliminated?
The main regulations that limit the **prices**, **quantities offered**, and **efficiency** of the system are:
The **BCRA** forces **private banks** to have policies for free financial products and services. These are part of the usual policies to encourage **financial inclusion**. However, **current regulations** do not adequately justify the need for these impositions, nor do they evaluate the associated costs and benefits, according to FIEL.
In this regard, they highlighted as an example that savings accounts, debit cards, cash withdrawals, and deposits in branches and ATMs are all free. This free-of-charge policy is extended not only to **natural persons** **but also to legal entities**, at a significant cost to the financial sector.
2) Credit card terms
Credit card terms have a **forced lag** between what they charge and what they pay, which historically was not the case.
3) Limitations on interest rates
**Banks** must collect UVA deposits at a minimum rate that is higher than that of the **CER bonds**.
4) Distribution of dividends
The imposition of a **prior authorization** for banks distributing dividends.
5) Minimum financing quota for SMEs
The **BCRA** establishes that banks must **assign quotas** to credit lines aimed at SMEs
6) Minimum excess cash
In Argentina, the **reserve requirements** or **minimum cash** taxes by the **BCRA** are more than triple those in force in most economies in the region.
7) Net overall foreign currency position
At this point, the intention is to have lower reserve requirements and greater capacity to use dollars from the net global position required today, so that entities can cover themselves once morest possible devaluations.
8) Opening, relocation and closing of branches
The opening, transfer, or closing of a **bank branch** requires conformity of the **BCRA**, generating **overcosts for banks** and putting them at a **disadvantage compared to competitors** that do not have physical branches like Fintechs. In this sense, Artana pointed out that there must also be **”pressure from unions not to close branches”** and hence, **lay off staff**.
8) Cash management
The **cash management** is **onerous**, especially the excessive requirements for its transportation. Cash withdrawal and deposit are free, although there are costs associated with these tasks.
The initiative for the deregulation of the financial system will be presented to the BCRA
The FIEL report, prepared by Artana together with **Santiago Urbiztondo** (Chief Economists of FIEL), **Laura D’Amato** (UCEMA-IIEP), **Monica Bakers** (Senior Economist), and **Juan Pablo Brichetti** (associate economist), proposes **a profound deregulation of the financial system**. The foundation anticipated that it will run for head of the **Central Bank (BCRA)**, **Santiago Bausili**, in case you are interested in the analysis and proposal it contains.
The **purpose of deregulation**, basically, is to:
- **Make financial services cheaper and promote financial inclusion.**
- **Boost economic growth and improve productivity.**
- **Encourage innovation and variety of financial products, on a level playing field.**
Artana emphasized the need to advance deregulation in order to “reduce expenses” **unnecessary** and **improve resource allocation** “inside the banks.”
Urgent Need for Deregulation in Argentina’s Financial System
A new report by the Latin American Economic Research Foundation (FIEL) calls for an urgent deregulation of the traditional financial system in Argentina. The proposal comes in the face of rapid fintech advancement and the lack of regulation on these companies.
Daniel Artana, chief economist at FIEL, argues that “the competition between banks and fintechs must be given with the same rules of the game.” This means “prudential regulation” for technology companies in the sector and a more “free” system for banks.
The report highlights the negative impact of current regulations on financial inclusion and urges a move toward a deep liberalization of the industry. “We must give them the freedom to provide the services they want free of charge,” says Artana.
Deregulation of the financial system: what regulations are proposed to be eliminated?
The main regulations that limit the prices of services offered, the quantities offered, and the efficiency of the system are:
1) Obligation to offer free products and services
The BCRA forces private banks to have policies for free financial products and services. These are part of the usual policies to encourage financial inclusion. However, the current regulations don’t adequately justify the need for impositions that appear excessive, nor do they evaluate the associated costs and benefits, according to FIEL.
The report highlights the fact that both savings accounts, debit cards, cash withdrawals, and deposits in branches and ATMs are free. However, this “free of charge” policy is not only extended to individuals but also to legal entities, at a significant cost to the financial sector.
2) Credit card terms
Credit card terms have a forced lag between what they charge and what they pay, which historically was not the case.
3) Limitations on interest rates
Banks must collect UVA deposits at a minimum rate that is higher than that of the CER bonds.
4) Distribution of dividends
The imposition of a prior authorization before banks distribute dividends.
5) Minimum financing quota for SMEs
The BCRA establishes that banks must assign quotas to credit lines aimed at SMEs.
6) Minimum excess cash
In Argentina, the reserve requirements or minimum cash taxes by the BCRA more than triple those in force in most economies in the region.
7) Net overall foreign currency position
The report proposes lowering reserve requirements and increasing the capacity to use dollars from the net global position required today. This would allow entities to cover themselves once morest possible devaluations.
8) Opening, relocation, and closing of branches
The opening, transfer, or closing of a bank branch requires conformity with the BCRA, generating overcosts for banks and putting them at a disadvantage compared to competitors that don’t have physical branches, like fintechs.
Artana points out that there must also be “pressure from unions not to close branches” and hence, lay off staff.
9) Cash management
Cash management is onerous, especially the excessive requirements for its transportation. Cash withdrawal and deposit are free, although there are costs associated with these tasks.
The initiative for the deregulation of the financial system will be presented to the BCRA
The FIEL report, prepared by Artana together with Santiago Urbiztondo (Chief Economists of FIEL), Laura D’Amato (UCEMA-IIEP), Monica Bakers (Senior Economist) and Juan Pablo Brichetti (associate economist), proposes a profound deregulation of the financial system.
The foundation anticipates that it will run for head of the Central Bank (BCRA), Santiago Bausili, in case you are interested in the analysis and proposal it contains.
The purpose of deregulation, basically, is for:
- Making financial services cheaper and promoting financial inclusion.
- Boosting economic growth and improving productivity.
- Encouraging innovation and variety of financial products, on a level playing field.
Artana emphasized the need to advance deregulation in order to “reduce unnecessary expenses” and “improve resource allocation” inside the banks.
