Bill that categorizes bank activity as "public service" passes first vote

Friday, November 12, 2010

In the latest of a series of moves to revise financial sector regulations, Venezuela's national assembly has passed, in a first vote, a new banking sector bill that would reduce the number of financial institutions operating in the country and categorize bank activity as a "public service."

A second vote that would turn the bill into law could take place within days.

The bill will also more than quintuple the minimum capital required to open a bank, to 170mn bolivares (US$40mn), and restrict large banks from holding more than a 15% market share by assets.

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In comments to the national assembly, finance commission head and assembly member Ricardo Sanguino said the bill would eliminate all niche financial lender regulatory categories, leaving only universal banks and microlenders.

"What was permitted here [in the current law] was where the trap was set by all those financial institutions that went bankrupt," Sanguino said, referring to the wave of government takeovers of banks, insurers and brokerage houses that started in December 2009.

Sanguino said the bill will also levy a 5% pre-tax fee on bank profits, to be invested in the projects started by the community councils set up by Venezuelan president Hugo Chavez.


The bill also categorizes banks as "a public service," a legal categorization that in the past has been used by the Venezuelan government to step in swiftly to take over companies in the industrial, telecommunications, agricultural and energy sectors.

In a press conference on Tuesday, banking association ABV head and Banesco president Juan Carlos Escotet called for calm, saying that the bill does not mean the nationalization of the banking sector.

"None of the articles of this law talk about the nationalization of the banking sector," he said, according to a report on news website "Specifically, what the law is after is more regulations for the banking sector, some of them being - in our humble opinion - misguided."

Venezuela's national assembly, which is dominated by Chavez supporters, has passed several laws this year to adjust regulation of the financial sector, including a comprehensive new insurance law and a law regulating the securities market.

Chavez supporters will not be able to move as swiftly next year, since they lost their two-thirds majority in September's legislative elections.

While members of Venezuela's elite private sector have loudly criticized Chavez over the last year as he has embarked on a campaign to expropriate a variety of different companies and assets, the banking sector has typically refrained from publicly criticizing new government moves designed to restrict and direct its activity.