Garcia-Herrero, Alicia, “Banking Crisis in Latin America in the 1990s: Lessons from Argentina, Paraguay and Venezuela”, IMF Working Paper WP/97/140, Washington, D.C., October 1997.
Gonzalez A., Marta and Madelin Otazo, “Porque Quebraron los Bancos-Analisis de la Crisis Financiera en el Paraguay”, Imprenta Salesiana, Asunción, 1999.
Prepared by Juan Carlos Jaramillo.
Not including those associated with the slowdown of economic activity. See Section IV below.
For more details on the origins of Paraguay’s banking crisis, see , ,  and .
As noted in [5,1996] p.13, “Already in 1989 the Bank Superintendency had assessed that about a third of the banking system was insolvent”.
As far back as 1991 the World Bank’s CEM for Paraguay noted that “some private banks are clearly bankrupt...three...have a negative net worth, but others may also be in trouble” ([6,1991] p.46). It then added that “...as of end 1990, at least 15 of 23 banks [are] in noncompliance [with minimum capital requirements] ([6,1991] p. 46). In the same vein, the 1994 Fund RED noted that “...institutions representing over ten percent of the banking system...remain in financial distress and may face intervention, merging or liquidation.” ([5, 1994] p.17). That same year’s Article IV Staff Report noted that “...the re-capitalization of banks with solvency problems is a priority...” ([4,1994] p.7). It then recommended that “The authorities ... should ... vigorously enforce adequate minimum capital, loan classification, and provisioning rules on the banks” ([4,1994] p.9).
During 1995 alone, the Central Bank of Paraguay spent close to G.700 billion (US$ 360 million - 4 percent of GDP) in its efforts to avoid the propagation of the crisis, an amount about equal to currency in circulation at the outset of the first wave.
This perception stemmed, by and large, from the fact that only two institutions had ever been intervened and closed in Paraguay despite banking practices such as those mentioned in the previous section.
The practice of parallel accounting also was widespread in nonintervened institutions. The publicity surrounding the discovery of parallel accounts, as well as pressure from regulators, led both depositors and managers of nonintervened institutions to formalize deposit holdings. To some extent this explains the increase in deposits observed during the second half of 1995 in several banks.
In both these banks IPS soon became the most important depositor. By end 1996 ninety eight percent of deposits at Banco de Desarrollo belonged to IPS.
Since IPS also held a large portion of its deposits at BNT, after the merger, BNT’s holdings of IPS deposits reached G. 230 billion, almost half of the Institute’s liquid assets at the time.
BCP was authorized to space payments beyond the first 20 monthly minimum wages for up to one year, as needed for monetary stability.
Elements of moral hazard remained, as bank owners were not forced to pay for the deposit insurance scheme.
This yield, according to IPS administrators, is well below the average yield on IPS’s other financial holdings.
See [5,1998] p.l 8 and p.44. The estimate, G.2,859 billion, provided a an upper bound to possible losses, as it explicitly did not include forecasts of asset recuperation in failed banks.
The imbalance is in fact even larger, because an unidentified portion of the uncovered deposits belong to public entities at different levels of government.
Central Bank officials have publicly referred to this issue as fact.
See (, , ,  and .