Building Effective Banking Systems in Latin America and the Caribbean

This study discusses staple reforms in banking systems in Latin America and the Caribbean to improve their effectiveness. The paper identifies the main problems countries have been experiencing with banking systems, triggered by large credit losses. The direct and indirect costs of banking sector crises have been astonishingly high. The author holds that while the symptoms and costs of banking sector problems are widely recognized, the magnitude of the remedial task is often significantly underestimated. The author then makes a series of observations to keep in mind: First, the acute and costly nature of the problem in most developing countries primarily reflects a host of historical institutional weaknesses that severely complicate the relationships between creditors and debtors; Second, under the best of circumstances, it will take a number of years to remedy these institutional problems, Third, building progressive and profitable banking systems in these countries will entail a mix of short-term and longer-term initiatives on the part of the banks, the authorities and the governments at large, as well as enlightened support and leadership from the international community.