This is an opinion piece from La Prensa which gives a good overview of why Panama banks were not and hopefully will not be so affected by the financial crises that has/is affecting the rest of the world.
PHILIP CHAPMAN *
OPINION. The recent economic crisis has been dubbed the Great Recession, which was catalyzed by excesses of the financial industry. Consequently, many governments have injected huge amounts of taxpayer money to keep afloat their financial systems, resulting in most cases, unsustainable levels of debt, further exacerbating their problems.
In our beloved tropics, we often wonder why Panama suffered minor consequences. The answer is complex and includes several elements, among which is a good banking supervision, the good work of many people, especially the last two-superintendents, their staff and members of various boards.
Despite the evils of our political immaturity, banking supervision has been able to enjoy relative independence and autonomy from the modernization of 1998. Other elements are as important as market rules, making Panama a rare case where fortunately no central bank, there is no lender of last resort and not have a deposit insurance program.
The absence of these reduces moral hazard, clearly present in markets with firms became too large to drop (too big to fail) by fears of contagion and systemic risk in the financial industry and the economy in general.
This causes undesirable behavior and even irrational excessive risk taking, so far mostly absent in Panama, except of course known exceptions for which we have gone quite happily away with it, no transmission or systemic implications.
The mere fact of listening to the possibility of setting up a mechanism that makes the lender of last resort and for the equivalent of a deposit insurance program, causing concern and uncertainty, the best.
During the recent global crisis coupled with an important local real estate expansion, our bankers acted more prudently than their counterparts elsewhere, largely by the absence of such a body which may assist, therefore, subjected to pure forces market. The main unintended consequence we suffered was an excess of conservatism that has crippled credit, bank liquidity increased significantly and exacerbated the slowdown in economic growth.
In retrospect, was a consequence rather less severe than that suffered by major economies are much more developed than ours. I am inclined to be very jealous of the quality of loan portfolios and investment banks, have good supplies, high levels of capitalization and reasonable levels of liquidity, foreign and reject the recommendation to introduce a lender of last resort and deposit insurance program, which is always paid for by consumers.