the bank run it was already a sangria and on Wednesday, July 30 President Jorge Batlle decreed the banking holiday that was extended for five days. On Sunday, August 4, Law 17,523 on the Stability of the Banking System was approved in Parliament, necessary to receive the bridge loan from the United States Department of the Treasury.
Between July 30 and August 4, the central bank (BCU) had ordered the suspension of activity of Banco Montevideo, La Caja Obrera, Banco Comercial and Banco de Credito. Those banks were insolvent, they didn’t reopen and ended up being liquidated. The spirits of the savers were tense and many demonstrated at the doors of these banking institutions.
The law also created the Banking System Stability Fund (FESB), whose objective was to guarantee the compliance of savers’ deposits in foreign currency. With the funds that came from abroad, each saver was paid up to US$50,000. From there, 28,500 people were left with uncovered savings.
Months later, in December 2002, Law 17,613 established granting those depositors who had been exposed up to US$100,000. As of that moment, the balances for more than that amount were pending return.
are currently in force three recovery funds corresponding to Banco Montevideo, La Caja Obrera and Banco Comercial, institutions in which savers remained unpaid. Since 2011 the Bank Savings Protection Corporation (Copab) is the one in charge of managing these funds.
Twenty years after the crisis, the recovery percentages were uneven. In Banco Montevideo it is 28.38%, in Banco Comercial 45.99% and in La Caja Obrera 62.46%. In the case of Banco de Credito (the other institution that was liquidated) there were no depositors with outstanding balances.
“We still get people who didn’t get their deposits back in full and it’s unlikely that it can be recovered. What is pending are trials, which are complex,” he told The Observer the manager of Copab, Gabriel Lemus. “There are situations that one understands; someone who sold real estate and then lost a significant chunk of money,” she added.
The president of Copab, Daniel Dominion, worked at the Central Bank (BCU) when the 2002 crisis broke out and therefore everything it caused is no stranger to him. Something similar happened with Lemus, who was a risk analyst at Banco República.
Camilo dos Santos
Gabriel Lemus and Daniel Dominioni from Copab
The worst moment that Dominioni remembers from the crisis was the day that the BCU board called all the managers and told them that there was going to be a bank holiday. “Before that there was a wear and tear, it was seen that the situation was getting worse and worse, the reserves were leaving. It was a very stressful situation,” he recounted.
“It was a global crisis, balance of payments, exchange rate, everything happened. I think the start was handled pretty well,” he added.
Lemus had the task of going to the BROU branches when they reopened after the bank holiday. “We had to go out and report, to face people who were understandably nervous,” he recalled.
“The money was immobilized and there was no room to solve it. There was nothing left but to listen, empathize and try to calm people down. Letting the person do catharsis,” she maintained.
The 2002 crisis left lessons for the protection of savers. was created the deposit insurance which is also managed by Copab. This insurance covers up to US$10,000 or 250,000 indexed units ($1.4 million) for national currency per person for each banking institution. 99% of people with deposits in national currency are covered by this insurance. In foreign currency, coverage is 62%.
“You tell many people that figure and it seems small, but when you look at the deposits you see that the vast majority are within that range” provided for in deposit insurance, Dominioni said. “Insurance is important because it is explicit; up to those figures it covers. And it prevents someone from thinking that there is insurance for everything, ”he concluded.
