Colombian financial system

1. EVOLUTION

In 1923 the Kemmerer mission organized the Colombian banking system; previously, between 1871 and that year, there were about 20 commercial banks with regional activity; By the 1920s, only Colombia, Bogotá and Comercial Antioqueño covered the entire country.

Said mission established a bank made up of the following commercial sections: checking accounts, savings deposits, fiduciary section, mortgage section and foreign trade businesses. Later, he was authorized to perform warehouse functions. The Banco de la República was also created as a central bank and the Banking Superintendency as a surveillance entity. Commercial banking was originally conceived to carry out short-term credit operations for working capital, particularly for the nascent industry. The mortgage tended to long-term loans, conducive to the promotion of productive investment in different sectors of the economy.

In 1929, as a result of the great recession, the banks faced an acute liquidity crisis that caused their equity to decline, external credit for banks stopped, the overdue portfolio increased, the value of assets decreased and the system was divided. financial in short and long-term markets disappeared (there were no long-term operations).

In the 1930s and to get the system out of the crisis, the state adopted a specialized banking system in which three types of entities stood out:

• Commercial banking: financial needs of commerce in general or related to the short term.

• Agricultural and industrial banking: it served these two sectors, within this framework the Agrarian Fund was created.

• Mortgage banking: oriented to construction, the BCH was created.

The Banco de la República was also strengthened, placed interest rate caps and issued money to buy past due loans.

From the 1930s to the 1970s, the government intervened in financial activity to a large extent, to stimulate development credit. In the 1940s, new public financial entities were created to support the productive sector. The Agrarian Fund and the BCH were expanded, in addition the initial capital was supplied for the creation of the IFI and the ICT was capitalized, it was also allowed the creation of a new type of private financial entities, complementary to the public development bank: the companies of capitalization, dedicated to promoting the formation of capital for productive investment.

During this period, as a result of the import substitution model that required financial support in cheap long and medium-term loans, the Banco de la República was assigned economic development functions through the management of special credit lines administered by financial entities, reserve requirements and interest rates. The state created new financial entities aimed at sector development such as Banco Popular, and the Cafetero and Ganadero banks. In 1957, the creation of financial corporations was authorized, which should serve exclusively the commercial sector, to reinforce the channeling of long-term resources and encourage the creation of new companies.

In 1963, as a result of the change in the development model, the Monetary Board was created, made up mostly of members of the government, with which the latter assumed control of the currency, credit and issuance capacity of the Banco de la República.. This year, the FIP (Private Investment Fund) was also created to strengthen the balance of payments, as a consequence of the intended export diversification. In 1967, the PROEXPO Export Promotion Fund and the Agrarian Financial Fund were created in 1966, to promote exports and agriculture.

In the 70s, the first took place towards financial liberation, the Savings and Housing Corporations CAV were created, which expanded the participation of the private sector in the financial sector, tending to the development of construction (massive projects). In the middle of the 1970s, a process of reducing legal limitations on financial operations began, seeking that the market and private initiative were the main drivers of credit resources. With its application, the scheme that limited the managerial autonomy of financial entities began to be dismantled. In 1979, the commercial financing companies were created, mainly in charge of operations to acquire durable consumer goods.

In the 1980s, after a boom period, the national economy declined; economic groups fought for the dominance of commercial and industrial companies, in an environment framed in the absence of state regulation. In addition, liquidity problems and a decrease in the assets of several entities broke the public's confidence. Thanks to state intervention, the crisis did not prosper. (1982-1984).

In December 1990, Law 45 of financial reform was issued, in which the following credit institutions are authorized: banking establishments, financial corporations, savings and housing corporations, and commercial financing companies. In turn, financial services companies are created, of which banks, financial corporations and commercial finance companies can be shareholders as subsidiaries. The financial services companies are the following: trust companies, financial leasing companies, stock brokers, general deposit warehouses, pension and severance fund management companies. Additionally there are: the FEN (specialized in energy projects), the IFI, the FINDETER (credit to municipalities),FINAGRO (agricultural sector) and the Foreign Trade Bank with mixed capital. Until a few years ago, these funds placed loans at rates below market rates, but these have been getting closer and closer to market levels.