Press Release No. 14/533

Press Release: Statement at the Conclusion of an IMF Visit to El Salvador

November 21, 2014

At the invitation of the Banco Central de Reserva (BCR), a team of experts from the Monetary and Capital Markets Department of the International Monetary Fund visited El Salvador to take part in a Forum on Financial Stability on November 19, 2014. The mission also met with senior officials of the BCR, the Ministry of Finance, the Superintendency of the Financial System, and the Institute for the Guarantee of Deposits; with members of the Financial Commission of the Legislative Assembly; and with representatives the financial sector.

At the conclusion of the visit, Hunter Monroe, the IMF mission chief, made the following statement:

“The mission shared at the Forum on Financial Stability its assessment of progress with the recommendations of the Financial Sector Assessment Program (FSAP) in 2010 and provided recommendations for further strengthening financial stability. There has been significant progress in many areas with the implementation of FSAP recommendations, including creation of a single financial supervisor with stronger powers and autonomy; progress toward implementing risk-based supervision; and the issuance by the BCR of many norms to fill remaining regulatory gaps. The BCR has also developed a Comprehensive Liquidity Policy and made progress with its implementation, including creation of a lender of last resort facility and a draft framework for a pooled liquidity fund. A Systemic Risk Committee was created in 2013, and work is underway on elaborating bank resolution manuals, taking into account the lessons of a banking resolution simulation exercise completed in 2011. Under the single supervisor, securities supervision has benefited from additional powers and clearer processes, from a stronger position within the financial sector, and from signing the International Organization of Securities Commissions’ Multilateral Memorandum of Understanding.

“Nevertheless, there remain areas where improvements are needed to strengthen the financial stability framework. Key steps to reinforce the framework include:

• Integrating and formalizing risk-based supervision in the context of the existing regulatory framework; broadening the regulatory perimeter; and amending the Banking Law to improve the definition of capital and to protect former and not only current supervisors;

• Reinforcing the capacity of the BCR to provide liquidity assistance to commercial banks based upon a defined multi-year financing strategy and creating a pooled liquidity fund;

• Enacting comprehensive resolution and crisis management legislation following a thorough diagnostic review; creating a permanent Financial Sector Stability Committee with authority to decide systemic cases, to issue prudential norms for systemic institutions, and to require recovery and resolution plans even in “normal” times; and addressing other important areas for improvement in the general banking resolution framework; and

• Overhauling the legal and regulatory framework for the securities market to provide fundamental elements of corporate governance, transparency and enforcement; removing the requirement to relist foreign securities domestically; linking the payments and settlements systems to allow Delivery versus Payment; developing the secondary market and the yield curve; and relaxing limits on pension portfolios.

“The mission expresses its appreciation for the opportunity to share its views and for the open and constructive dialogue during its visit, which underscore the commitment of the authorities and other forum participants to strengthening financial stability.”