There are numerous stories of Latin banks facing runs after their reputation crashed, often causing ripples that spread across the sector. Just last year, Brazil’s mid-sized Banco PanAmericano was investigated by the Central Bank for accounting irregularities and forced into a $1.5 billion rescue before being bought by BTG Pactual. A fresh scandal at Brazil’s Banco Cruzeiro do Sul, now taken over by the Central Bank, continues to reverberate. These scandals hurt banks with similar profiles and are affecting their ability to raise funds.
Reputational damage has been one factor behind the enormous consolidation of banks in the region over the last 20 years with flight to quality in times of crisis, points out Robert Stoll, director of Latin America financial institutions at Fitch Ratings in New York. In Ecuador, the number of banks fell from more than 40 to about 25 and in Brazil from over 300 to about 150 between the late 1980s and the early 2000s.
This is the start of a feature article looking at the kinds of reputational risks Latin banks face and how they tackle them differently to other parts of the world. To read the rest of the article, please go to www.risk.net/operational-risk-and-regulation.