IMF Staff Country Reports

Ecuador: Financial System Stability Assessment

September 21, 2023

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International Monetary Fund. Monetary and Capital Markets Department "Ecuador: Financial System Stability Assessment", IMF Staff Country Reports 2023, 335 (2023), accessed December 21, 2024, https://doi.org/10.5089/9798400254208.002

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Summary

This paper discusses financial system stability assessment (FSSA) in Ecuador. Banks and credit cooperatives dominate Ecuador’s financial system. While dollarization provides an important anchor for the Ecuadorean economy, systemic liquidity risks are high due to the limited capacity of the central bank to provide liquidity. The financial sector is overall resilient to adverse macrofinancial shocks but some institutions have meaningful solvency and liquidity vulnerabilities. To preserve confidence it is key to enhance capitalization, promptly recognize loan losses, and address unviable institutions. The FSSA concluded that institutional framework for financial sector oversight is complex, uncoordinated, and prone to political intervention. Reforms are needed to enhance supervisory independence, prioritize safety and soundness; separate prudential supervision from other functions, and substantially strengthen the supervisory approach. The macroprudential framework needs further progress by developing stronger financial sector-wide analytical capacity, improving information sharing and coordination, and clarifying the roles between multiple agencies.

Subject: Credit, Financial institutions, Financial regulation and supervision, Financial Sector Assessment Program, Financial sector policy and analysis, International organization, Loans, Monetary policy, Money, State-owned banks

Keywords: B. bank solvency stress tests, Caribbean, Credit, Emergency liquidity assistance facility, Financial Sector Assessment Program, Global, Lender-of-last resort function, Liquidity analysis, Liquidity condition, Liquidity fund, Liquidity vulnerability, Loans, State-owned banks, World Bank FSAP mission

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