Caracas, Venezuela, June 25, 2010 (venezuelanalysis.com)-- The Venezuelan government released the deposits of nearly all Banco Federal’s account holders today only 11 days after the banks operations were suspended for failing to comply with banking regulations.
On June 14, Banco Federal was closed and all its accounts were frozen after its owners ignored several government warnings that they must increase the bank’s reserves in order to guarantee deposits.
The bank held only BsF920 million in reserve for BsF3.5 billion of deposits.
According to the Superintendent of Banks and other Financial Institutions (Sudeban), Humberto Ortega Diaz, such a ratio risked a bank run which could have had a domino effect on the stability of the whole banking system.
Banco Federal had also failed in its legal obligation to ensure its financial resources were allocated towards developing the productive economy of the country and was suspected of involvement in illegal currency trading.
Starting today, 70,000 of the 273,000 account holders over 55 years old could take out their money and from July 2 everybody else over 18 years old will be able to do the same. There are special arrangements in place for younger account holders.
Ortega Diaz, who is also President of the Bank of Venezuela said: “We are assisting today those older than 55 years. These savings are the productive effort of their whole lives. “
“We place our money in banks with the intention of receiving a monthly remuneration. Sadly, situations like this happen with the lack of transparency of some banks”
The president of Fogade, David Alastre, praised the calm and dignified manner in which Venezuelans waited for their money.
“Here, the people didn’t come to kick the bank doors in like they did in 1994, tired of waiting for more than a year to be paid their savings.
“Today, a little less than a week after the measure, people are already completing the process of verification and registration of their details so that their money is transferred to them,” he said.
Venezuela suffered a major banking crisis in 1994 when the country was governed during the fourth republic and the neoliberal financial regime of then-President Rafael Caldera.
The state bailed out more than half of the banks and the country lost an estimated $3.5bn in capital flight as a result.
While the bankers were bailed out at this time, ordinary Venezuelans suffered the adverse economic consequences of the crisis.
The capital controls the Chavez government now has in place to a large extent prevent capital flight and protect the domestic economy.
A decision has yet to be made on the future of the Banco Federal. Alastre said that it could be re-opened, or it could be merged with another bank.
It could also end up liquidated by the Central Bank of Venezuela, that is, permanently closed with the central bank assuming all of its liabilities.
As Banco Federal is closed, 3,025 outlets of 12 other banking institutions, both public and private, were given responsibility for distributing the deposits today, which amount to BsF2.2 billion.
The deposit guarantee put in place by the Venezuelan Fund to Guarantee Deposits and Banking Protection (Fogade) only covers those account holders whose savings are less than BsF.30,000. The other 4 percent who have deposits greater than that figure are required to go through alternative procedures.
Arrest warrants have been issued for the owner of Banco Federal, Nelson Mezerhane, and his senior bankers, but Mezerhane managed to flee the country before the paper work preventing him doing so had been completed.
He is now in Miami and said that he will not return to Venezuela, saying he fears political persecution. He is also a minority shareholder in the opposition TV station Globovision.
Rumours designed to rock the banking system
Venezuelan Vice-President Elias Jaua said that he believes there is a rumour campaign, designed to generate panic in the banking system and cause bank runs.
But a private banking organization, the Venezuelan Banking Associaton, has gone on record to say they have confidence in the system.
The association’s President Juan Carlos Escotet said, “The situation of the stability, solidity, and solvency of the national banking sector, as [state] authorities have reiterated, isn’t up for discussion.”
“The problem isn’t financial, it is criminal, since those responsible for spreading rumours have a clear intention of causing instability.”
He went on to say that it is illegal under Venezuelan law to spread rumours that could cause instability in the banking system.
He also said that the Venezuelan banking system is healthy and well managed.