Systems of Banking and Production in Argentina
Víctor Fernández, Carolina Lauxmann and Julio Tealdo
b) Endogeneity and Exogeneity in Capital Ownership

There have also been changes to the origin of capital ownership during the 1990s, mainly starting in 1995-1996, when a marked process of foreignization took place in the Argentinean financial banking system. The approval of Decree 146/94 granted foreign banks the same treatment as local banks, and the increasing rigidness of pragmatic measures and oversight for financial institutions implemented following the tequila crisis put foreign banks in a better position than local banks.7 This process peaked in 2001, when foreign capital banking institutions represented about 45% of the total sector, although their decline began in this year as well, as their participation fell by 14 percentage points by the beginning of 2010.

The foreignization of the banking system is also evident in the level of control that foreign capital banks have over the main system variables: assets, loans and deposits, considered in December of every year. Certainly, during the second half of the 1990s, international financial institutions had become strategic fans of financial intermediation (Fernández, et al., 2005). But following the 2001 crisis, in the same way that the number of institutions declined, their privileged role in the attainment and recirculation of financial flows was outweighed by greater participation from national banks, both public and private.

Measures adopted by the State to emerge from the economic crisis were of great importance in the process to “renationalize” the financial banking system. Unlike what happened in 1995 when governmental authorities chose a “market solution” to ameliorate the effects of the tequila crisis, selectively removing themselves from the problem (Fernández, et al., 2005) and favoring a foreignized model of concentrated banking (García, 199), in this case, they chose to implement an active intervention strategy that brought about a change in this pattern. Among the most important measures, we can mention the following: tightening of restrictions on cash withdrawals from banking institutions put into place in 2001; the asymmetrical pesification of credits and debts held in dollars;8 compensating banks for damaging measures with bonds issued by the Treasury and the reform of the bcra Organic Letter, which granted greater freedom to bail out at-risk institutions, basically through a high discount policy (Puente and Etchemendy, 2009).

This set of regulations, apparently equal for all banks, really benefitted the national banks. The adopted measures, which sought to avoid a general crash of the financial system, went against the interests of large multinational banks. The latter offered to bring dollars from abroad and return deposits made in their institutions in foreign currency, in exchange for keeping the private banks that couldn’t comply with these obligations and to shrink public banking (Marshall, 2007). The rejection of this option, in combination with the crisis in which Argentina found itself, was one of the main factors that discouraged foreign institutions from staying in the country (Figure 3).

Figure 3. Evolution of Relative Participation of Foreign Banks in the Financial Banking System
Source: Prepared by the authors, based on information from the BCRA, Financial Institutions Report.

7 Not all Financial System banking institutions were in the same position to confront minimum capital regulations, to comply with liquidity requirements and the ratings requirement in place following the crisis. As such, these general pragmatic measures that would seem to affect all actors in the same way, really ended up favoring a determined banking model: powerful banks, mainly foreign, which were in the best position to comply with these new rules.

8 All banking assets were subject to the conversion u$d=$1, and liabilities were subject to u$d=$1.40, updated by the Reference Stabilization Coefficient (rsc) and consumer price inflation from the previous month.