2002 Uruguay banking crisis
Encyclopedia
The Uruguay Banking Crisis was a major banking crisis that hit Uruguay
in July 2002. In this, a massive run on banks
by depositors caused the government to freeze banking operations. The crisis was caused by a considerable contraction in Uruguay's economy and by over-dependence on neighboring Argentina
, which experienced an economic meltdown itself in 2001. In total, approximately 33% of the country's deposits were taken out of financial system and five financial institutions were left insolvent.
According to many sources, the banking crisis could have been avoided if Uruguayan authorities had properly regulated its banks. The Central Bank of Uruguay
had trusted international banks to regulate themselves properly and was too lenient and slow in responding to the crisis.
Latinamerika and Credit Suisse First Boston
the Banco Comercial del Uruguay (BCU), one of that country's oldest and largest national banks. As the years progressed, Uruguay developed as a large offshore banking center for Argentina and Brazil
, largely as a result of its lax banking laws and the predominant view among Argentines that Uruguay was a stable place for their savings.
As a result of the banking crisis, some $800 million USD of assets were missing from the BCU alone. In the end, five financial institutions failed and hundreds of thousands in Uruguay, Argentina and Brazil were left in dire economic conditions after seeing their bank accounts literally disappear.
In January 2005, the Paris-based International Chamber of Commerce
ruled that the Uruguayan government would have to pay $120 million USD to JPMorgan Chase & Co., Dresdner Bank AG, and Credit Suisse First Boston for failing to maintain the solvency of the BCU.
The crisis underscores the three banks’ difficulty in managing risk in developing countries and dealing with local partners during a time of financial crisis. As a result, a class of BCU's former depositors is suing the three international banks and the individual directors they appointed to BCU's board to recover the losses suffered as a result of the bank's collapse.
Uruguay
Uruguay ,officially the Oriental Republic of Uruguay,sometimes the Eastern Republic of Uruguay; ) is a country in the southeastern part of South America. It is home to some 3.5 million people, of whom 1.8 million live in the capital Montevideo and its metropolitan area...
in July 2002. In this, a massive run on banks
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...
by depositors caused the government to freeze banking operations. The crisis was caused by a considerable contraction in Uruguay's economy and by over-dependence on neighboring Argentina
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
, which experienced an economic meltdown itself in 2001. In total, approximately 33% of the country's deposits were taken out of financial system and five financial institutions were left insolvent.
According to many sources, the banking crisis could have been avoided if Uruguayan authorities had properly regulated its banks. The Central Bank of Uruguay
Central Bank of Uruguay
-History:The Central Bank of Uruguay was established on July 6, 1967 as an autonomous state entity , with the passing of the 196th article of the República Oriental del Uruguay's Constitution....
had trusted international banks to regulate themselves properly and was too lenient and slow in responding to the crisis.
Banco Comercial del Uruguay
In 1990, Chemical Overseas Holdings, Inc. (a subsidiary of JPMorgan Chase) acquired with Dresdner BankDresdner Bank
Dresdner Bank AG was one of Germany's largest banking corporations and was based in Frankfurt. It was acquired by competitor Commerzbank in December 2009.- 19th century :...
Latinamerika and Credit Suisse First Boston
Credit Suisse First Boston
Credit Suisse First Boston was the former name of the banking firm Credit Suisse.-History:In 1978, Credit Suisse and First Boston Corporation formed a London-based 50-50 investment banking joint venture called the Financière Crédit Suisse-First Boston...
the Banco Comercial del Uruguay (BCU), one of that country's oldest and largest national banks. As the years progressed, Uruguay developed as a large offshore banking center for Argentina and Brazil
Brazil
Brazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people...
, largely as a result of its lax banking laws and the predominant view among Argentines that Uruguay was a stable place for their savings.
As a result of the banking crisis, some $800 million USD of assets were missing from the BCU alone. In the end, five financial institutions failed and hundreds of thousands in Uruguay, Argentina and Brazil were left in dire economic conditions after seeing their bank accounts literally disappear.
In January 2005, the Paris-based International Chamber of Commerce
International Chamber of Commerce
The International Chamber of Commerce is the largest, most representative business organization in the world. Its hundreds of thousands of member companies in over 130 countries have interests spanning every sector of private enterprise....
ruled that the Uruguayan government would have to pay $120 million USD to JPMorgan Chase & Co., Dresdner Bank AG, and Credit Suisse First Boston for failing to maintain the solvency of the BCU.
The crisis underscores the three banks’ difficulty in managing risk in developing countries and dealing with local partners during a time of financial crisis. As a result, a class of BCU's former depositors is suing the three international banks and the individual directors they appointed to BCU's board to recover the losses suffered as a result of the bank's collapse.
External links
- Banking crisis grips Uruguay (BBC News)
- Banking reform will reinforce recovery (The BankerThe BankerThe Banker is an English-language monthly international financial affairs publication owned by The Financial Times Ltd. and edited in London...
) - Bank Frauds Highlight Lax Controls, Possible Collusion by Officials (Costa Rica Daily Online News Magazine)
- J.P. Morgan, Partners Sued Over Lost Argentine Funds (Bloomberg)
- Banks risk legal action through involvement with Argentine Rohm brothers (Latin Lawyer: Argentina)
- Banco Comercial: Creditor Wins First Round in Legal Battle (Bankrupt.com - Scroll down to find URUGUAY)